This index fund provides exposure to hundreds of well-known U.S. stocks, including Microsoft, Apple, Nvidia, and Amazon.
Billionaire Warren Buffett has guided Berkshire Hathaway to incredible success. The company's share price has grown twice as fast as the S&P 500since he took control in 1965, due in large part to his abilities as a businessman and investor.
Somewhat surprisingly, Buffett does not recommend Berkshire stock. Instead, he has consistently told investors to buy an S&P 500 index fund. "I recommend the S&P 500 index fund, and have for a long, long time to people. And I've never recommended Berkshire to anybody," Buffett said at Berkshire's annual shareholder meeting in 2021.
That investment strategy may not be exciting, but it has been a surefire moneymaker for patient investors. Here's how the Vanguard S&P 500 ETF (VOO 1.00%) could turn $450 per month into $983,800 over three decades.
The Vanguard S&P 500 ETF tracks hundreds of influential U.S. stocks
The Vanguard S&P 500 ETF measures the performance of 500 large U.S. companies. The index fund provides exposure to value stocks and growth stocks from every market sector, and its constituents account for about 80% of U.S. equities and 50% of global equities by market capitalization. The top 10 holdings are detailed below.
- Microsoft: 7.2%
- Apple: 6.6%
- Alphabet: 3.7%
- Nvidia: 3.7%
- Amazon: 3.5%
- Meta Platforms: 2.1%
- Berkshire Hathaway: 1.7%
- Tesla: 1.3%
- Broadcom: 1.3%
- Eli Lilly: 1.3%
As detailed, the Vanguard S&P 500 ETF lets investors spread money across many of the most influential American businesses. Buffett finds that compelling. "American business -- and consequently a basket of stocks -- is virtually certain to be worth far more in the years ahead," he wrote in his 2016 shareholder letter.
The S&P 500 has consistently made money for patient investors
Buffett once said, "I do not think the average person can pick stocks." That has nothing to do with intelligence. Instead, Buffett believes most people lack the patience and dedication required to pick good stocks. Analyzing businesses is a skill that takes time to develop and there is simply no substitute for experience.
And even with time and practice, beating the is difficult. Even professional money managers struggle to overcome the odds and beat the market. Just 14% of large-cap funds outperformed the S&P 500 over the last five years, and only 8% outperformed the S&P 500 over the last 15 years, according to S&P Global.
Patience is the secret to making money in the S&P 500. The index may go up or down in any given year, but the odds of a positive return improve dramatically as the holding period lengthens. The S&P 500 has been a profitable investment over every rolling 20-year period since the index was created in 1957. In other words, buying and holding an S&P 500 index fund for at least 20 years has historically been a surefire path to profit.
The Vanguard S&P 500 ETF could turn $450 per month into $983,800 over three decades
The S&P 500 returned 1,800% over the last three decades, increasing at 10.3% annually. That period encompasses enough different market environments -- from economic booms to recessions -- that investors can reasonably assume similar results in the future.
In that scenario, $450 invested monthly would grow into $91,300 in one decade, $334,800 in two decades, and $983,800 in three decades, assuming an annual return of 10.3%.
Of course, some readers may not be able to save $450 per month and others may want to save more. To accommodate those situations, the chart below shows how different monthly contribution amounts would grow over time, assuming an annual return of 10.3%.
Holding Period | $250 per Month | $350 per Month | $550 per Month |
---|
10 years | $50,700 | $71,000 | $111,600 |
20 years | $186,000 | $260,400 | $409,200 |
30 years | $546,600 | $765,200 | $1.2 million |
Calculations by author via mdm.ca. Dollar amounts have been rounded down to the next $100.
The last item of consequence is the expense ratio. The Vanguard S&P 500 ETF bears an ultra-low expense ratio of 0.03%, meaning the annual fee would be just $0.30 for every $1,000 invested in the fund. For context, the average expense ratio across mutual funds and ETFs was 0.47% in 2022.
That's just one more reason the Vanguard S&P 500 ETF is a compelling option. Investors would be hard-pressed to find cheaper alternatives with similar risk-reward profiles. Buffett is well aware of that, and it's why he has consistently recommended an S&P 500 index fund.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Amazon, Nvidia, Tesla, and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Meta Platforms, Microsoft, Nvidia, S&P Global, Tesla, and Vanguard S&P 500 ETF. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
FAQs
The Vanguard S&P 500 ETF could turn $450 per month into $983,800 over three decades. The S&P 500 returned 1,800% over the last three decades, increasing at 10.3% annually.
What investment does Warren Buffett recommend? ›
Buffett has long advised most investors to use index funds to invest in the market, rather than trying to pick individual stocks. By picking individual stocks you're working against the pros who have extensive intelligence on companies.
What is Warren Buffett's 90/10 rule? ›
Warren Buffet's 2013 letter explains the 90/10 rule—put 90% of assets in S&P 500 index funds and the other 10% in short-term government bonds.
Which S&P 500 index fund to buy? ›
Top S&P 500 index funds in 2024
Fund (ticker) | 5-year annual returns | Minimum investment |
---|
iShares Core S&P 500 ETF (IVV) | 14.5% | None |
Schwab S&P 500 Index (SWPPX) | 14.5% | None |
Vanguard 500 Index Fund (VFIAX) | 14.5% | $3,000 |
Fidelity 500 index fund (FXAIX) | 14.5% | None |
4 more rowsApr 5, 2024
What ETFs does Warren Buffett buy? ›
Through his holding company Berkshire Hathaway, Warren Buffett owns two S&P 500 ETFs -- the Vanguard S&P 500 ETF (NYSEMKT: VOO) and the SPDR S&P 500 ETF Trust (NYSEMKT: SPY).
What is the Warren Buffett 70/30 rule? ›
A 70/30 portfolio is an investment portfolio where 70% of investment capital is allocated to stocks and 30% to fixed-income securities, primarily bonds.
What bank does Warren Buffett use? ›
Buffett has always had a love affair with the financial sector, and Bank of America is Berkshire's largest bank stock holding. Buffett's history with the bank goes back to 2011 when Berkshire invested $5 billion in the bank to provide liquidity following the 2008 financial crisis.
What is Warren Buffett's golden rule? ›
Buffett's headline rule is “don't lose money” and his second rule is “don't forget rule one”. This might sound obvious. Of course, it is. But it's important to look at the message within.
How much money do I need to invest to make $3,000 a month? ›
Imagine you wish to amass $3000 monthly from your investments, amounting to $36,000 annually. If you park your funds in a savings account offering a 2% annual interest rate, you'd need to inject roughly $1.8 million into the account.
What did Warren Buffett tell his wife to invest in? ›
“One bequest provides that cash will be delivered to a trustee for my wife's benefit,” he wrote. “My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund.” Buffett recommended using Vanguard's S&P 500 index fund.
ICICI Prudential Nifty 50 Index Fund-Growth is among India's top 10 index funds. It falls within the Large Cap Index category. Over the past year, ICICI Prudential Nifty 50 Index Fund-Growth has returned 15.09 percent. Since its inception, it has delivered an average annual return of 14.74 percent.
What is the best index fund for beginners? ›
VFIAX and QQQM are often described as some of the best index funds for beginner investors.
What is the best S&P 500 index fund for long-term use? ›
What's the best S&P 500 index fund?
Index fund | Minimum investment | Expense ratio |
---|
Vanguard 500 Index Fund - Admiral Shares (VFIAX) | $3,000. | 0.04%. |
Schwab S&P 500 Index Fund (SWPPX) | No minimum. | 0.02%. |
Fidelity 500 Index Fund (FXAIX) | No minimum. | 0.015%. |
Fidelity Zero Large Cap Index (FNILX) | No minimum. | 0.0%. |
1 more rowApr 2, 2024
What is Warren Buffett's biggest investment? ›
Top Warren Buffett Stocks By Size
- Bank of America (BAC), 1.03 billion.
- Apple (AAPL), 905.6 million.
- Coca-Cola (KO), 400 million.
- Kraft Heinz (KHC), 325.6 million.
- Occidental Petroleum (OXY), 248.1 million.
- American Express (AXP), 151.6 million.
- Chevron (CVX), 126.1 million.
- Nu Holdings (NU), 107.1 million.
Where does Warren Buffett invest his money? ›
Berkshire Hathaway is Buffett's investment company. It's the full owner of many recognizable companies, including GEICO and Fruit of the Loom. Berkshire is also a major shareholder in many other publicly-traded companies, such as Apple (AAPL).
Which ETF has the most Berkshire Hathaway? ›
What ETF is Berkshire Hathaway in?
ETF | Weight | TER |
---|
SPDR S&P US Financials Select Sector UCITS ETF | 13.41% | 0.15% |
iShares MSCI World Paris-Aligned Climate UCITS ETF USD (Acc) | 0.33% | 0.20% |
SPDR MSCI ACWI UCITS ETF USD Hedged (Acc) | 0.73% | 0.45% |
JPMorgan Global Equity Premium Income UCITS ETF USD (acc) | 1.20% | 0.35% |
36 more rows
What are Warren Buffett's 5 rules of investing? ›
Here's Buffett's take on the five basic rules of investing.
- Never lose money. ...
- Never invest in businesses you cannot understand. ...
- Our favorite holding period is forever. ...
- Never invest with borrowed money. ...
- Be fearful when others are greedy.
What does Warren Buffett not invest in? ›
Gold. Buffett is also uninterested in gold. In his 2011 letter to shareholders, he noted that gold has two significant shortcomings, “being neither of much use nor procreative.” “If you own one ounce of gold for an eternity, you will still own one ounce at its end.
What is Warren Buffett investing in 2024? ›
The Buffett holding that is thriving right now is none other than American Express (NYSE: AXP). The company reported an 11% year-over-year revenue increase for the first three months of 2024. The total of $15.8 billion came in slightly ahead of analysts' expectations.
What is a 70 30 investment strategy? ›
The old-school approach for many investors and financial advisors has traditionally been to structure an investment portfolio on a 70/30 basis (or similar figures). This strategy allocates 70% of an investor's funds to equities or equity-focused investments, and 30% to bonds, or fixed-income investments.