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 1.26%) 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 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 | Expense ratio |
|---|
| iShares Core S&P 500 ETF (IVV) | 14.5% | 0.03% |
| Schwab S&P 500 Index (SWPPX) | 14.5% | 0.02% |
| Vanguard 500 Index Fund (VFIAX) | 14.5% | 0.04% |
| Fidelity 500 index fund (FXAIX) | 14.5% | 0.015% |
4 more rowsApr 5, 2024
Buffett's biggest investment last year
One stock that he consistently added to in 2023 and continues to buy in 2024, though, is Occidental Petroleum (NYSE: OXY). The company holds a strong position in the Permian Basin, giving it access to some of the lowest-cost oil supply in the country.
What is Warren Buffett portfolio right now? ›
The current portfolio value is calculated to be $347.36 Bil. The turnover rate is 1%. In Warren Buffett's current portfolio as of 2023-12-31, the top 5 holdings are Apple Inc (AAPL), Bank of America Corp (BAC), American Express Co (AXP), Coca-Cola Co (KO), Chevron Corp (CVX), not including call and put options.
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.
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.
Which index fund gives the highest return? ›
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? ›
For beginners, the vast array of index funds options can be overwhelming. We recommend Vanguard S&P 500 ETF (VOO) (minimum investment: $1; expense Ratio: 0.03%); Invesco QQQ ETF (QQQ) (minimum investment: NA; expense Ratio: 0.2%); and SPDR Dow Jones Industrial Average ETF Trust (DIA).
What is the best US index fund? ›
Best index funds to invest in 2024
- Fidelity Series Large Cap Growth Index Fund (FHOFX) ...
- Fidelity Large Cap Growth Index Fund (FSPGX) ...
- Schwab U.S. Large-Cap Growth Index Fund (SWLGX) ...
- Fidelity U.S. Sustainability Index Fund (FITLX) ...
- Fidelity 500 Index Fund (FXAIX) ...
- Schwab S&P 500 Index Fund (SWPPX)
He also received an annual salary of $100,000 for several decades until his death in November 2023, SEC filings show. In contrast, Ajit Jain and Greg Abel, who head up Berkshire's insurance and non-insurance divisions respectively, are paid far more handsomely.
How to become rich Warren Buffett? ›
Today, Warren Buffett has quite a lot of advice and tips for people looking to become rich themselves. In particular, he advocates for investing in yourself and in what you know, reinvesting profits, being persistent and patient, analyzing risks, setting clear goals, and making informed decisions based on those goals.
What has Warren Buffett just bought? ›
What stock did Warren Buffett recently buy? Buffett bought shares of Chevron, Occidental Petroleum, and Sirius XM Holdings in the fourth quarter of 2023.
What stock does Warren Buffett recommend? ›
As of the end of the fourth quarter of 2023, 66 hedge funds out of the 933 funds tracked by Insider Monkey had stakes in Occidental Petroleum Corp (NYSE:OXY). In addition to Occidental, Buffett also likes Apple Inc. (NASDAQ:AAPL), Coca-Cola Co (NYSE:KO) and Chevron Corp (NYSE:CVX).
Who has most of Warren Buffett portfolio? ›
Perhaps it's no surprise that the largest holding (by a mile!) in Warren Buffett's portfolio, tech stock Apple (NASDAQ: AAPL), is the company he referred to as "a better business than any we own" during Berkshire Hathaway's 2023 annual shareholder meeting. Apple accounts for more than 41% of invested assets.
Who owns Vanguard Group? ›
Vanguard is owned by its member funds, which in turn are owned by fund shareholders. With no outside owners to satisfy, this structure ensures business and portfolio management decision focuses squarely on meeting the investment needs of our investors.
What are the Warren Buffett's first 3 rules of investing money? ›
Some of his most important rules include:
- Rule 1: Never lose money. This is considered by many to be Buffett's most important rule and is the foundation of his investment philosophy. ...
- Rule 2: Focus on the long term. ...
- Rule 3: Know what you're investing in.
Buffett presented a three-step exercise to help streamline his focus. The first step was to write down his top 25 career goals. In the second step, Buffett told Flint to identify his top five goals from the list. In the final step, Flint had two lists: the top five goals (List A) and the remaining 20 (List B).
What is an example of a 90 10 portfolio? ›
An Example of the 90/10 Strategy
An investor with a $100,000 portfolio who wants to employ a 90/10 strategy could invest $90,000 in an S&P 500 index mutual fund or exchange traded fund (ETF), with the remaining $10,000 going toward Treasury bills.
