Warren Buffett is one of the most successful investors in history. He has often recommended that most people invest in an S&P 500 index fund. The Vanguard S&P 500 ETF is a popular choice that Buffett himself owns through his company, Berkshire Hathaway.
The Vanguard S&P 500 ETF tracks the performance of 500 large U.S. companies. It covers 80% of the domestic stock market and 50% of the global stock market by value. The fund includes stocks from all 11 market sectors, providing broad diversification.
Buffett believes an S&P 500 index fund is the best way for most investors to gain stock market exposure. Picking individual stocks requires more time and effort than many people are willing to commit. Even professional money managers struggle to consistently beat the S&P 500’s returns.
Historically, the S&P 500 has returned an average of about 10% per year. At that rate, investing $500 per month in the Vanguard S&P 500 ETF could grow to nearly $1 million over 30 years. The fund has a very low expense ratio of just 0.03%.
Buffett’s enduring investment strategy
Some Wall Street analysts predict the S&P 500 could soar much higher from current levels. Tom Lee of Fundstrat Global Advisors forecasts the index could gain 147% to reach 15,000 by 2030.
However, investors should be cautious about relying too heavily on such optimistic predictions. The S&P 500 has faced many crashes and bear markets throughout its history. But research shows it has always recovered to post positive returns over any 20-year period.
This resilience makes an S&P 500 index fund a relatively safe long-term investment. Many people dream of becoming a millionaire through investing. With an S&P 500 index fund, that goal may be achievable for those who start early and invest consistently.
For example, investing about $1,000 per month could lead to a $1 million portfolio after 20 years, assuming 7% average annual returns. In conclusion, an S&P 500 index fund like the Vanguard S&P 500 ETF is a simple, low-cost way to invest in the stock market. It aligns with Warren Buffett’s advice for the average investor.
While not without risk, its strong track record and broad diversification make it an attractive core holding for many portfolios.
