Warren Buffett, the renowned investor, has long advocated for investing in an S&P 500 index fund. He believes this simple strategy can yield impressive results over the long term. Buffett has a proven track record of success.
Under his leadership, Berkshire Hathaway has returned 20% annually since 1965, outpacing the broader market’s average annual return of 10.4%. Despite his stock-picking skills, Buffett emphasizes the benefits of investing in an S&P 500 index fund for the average investor. “I recommend the S&P 500 index fund, and have for a long, long time, to people,” Buffett said in 2021.
Following this advice consistently could potentially turn a $400 monthly investment into $851,800 over 30 years. The Vanguard S&P 500 ETF tracks the S&P 500 index, which measures the performance of 500 large U.S. companies, including Apple, Nvidia, and Tesla. This ETF provides broad exposure to about 80% of the U.S. equity market and 50% of the global equity market by value.
The Vanguard S&P 500 ETF has a low expense ratio of 0.03%.
Buffett endorses Vanguard ETF
This means shareholders pay just $0.30 annually for every $1,000 invested, compared to the average expense ratio of 0.34% for U.S. exchange-traded and mutual funds.
Over the last 30 years, the S&P 500 has returned 1,860%, equal to an annual return of 10.4%. Given this historical performance, investors might expect similar returns in the future. With a 10.4% annual compound return, a $400 monthly investment in the Vanguard S&P 500 ETF could grow to $77,900 in 10 years, $287,700 in 20 years, and $851,800 in 30 years.
For those worried about the ETF’s current share price of $549, there are two options. You can buy fractional shares, which most brokerages support. Or you can save up the $400 in your account each month until you have enough to buy whole shares.
Investing in an index fund like the Vanguard S&P 500 ETF is a straightforward and cost-effective way to gain exposure to a large part of the market. Historically, these funds have created substantial wealth for patient investors. There is every reason to believe they will continue to do so in the future.
