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 -0.70%) 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
Berkshire Hathaway CEO Warren Buffett has regularly recommended an S&P 500 index fund. The S&P 500 has been a profitable investment over every rolling 20-year period in history. The S&P 500 returned 1,800% over the last three decades, compounding at a pace that would have turned $450 per month into $983,800.
What is the 70 30 Buffett rule investing? ›
What Is a 70/30 Portfolio? 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. Any portfolio can be broken down into different percentages this way, such as 80/20 or 60/40.
What is the best S&P 500 index fund? ›
Best S&P 500 index funds
- Fidelity 500 Index Fund (FXAIX).
- Vanguard 500 Index Fund Admiral Shares (VFIAX).
- Schwab S&P 500 Index Fund (SWPPX).
- State Street S&P 500 Index Fund Class N (SVSPX).
The current portfolio value is calculated to be $331.68 Bil. The turnover rate is 1%. In Warren Buffett's current portfolio as of 2024-03-31, 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.
Is Voo better than FXAIX? ›
FXAIX - Performance Comparison. The year-to-date returns for both investments are quite close, with VOO having a 11.79% return and FXAIX slightly higher at 11.84%. Both investments have delivered pretty close results over the past 10 years, with VOO having a 12.75% annualized return and FXAIX not far ahead at 12.83%.
What is the 5 25 rule Warren Buffett? ›
The rule's origin is reported as advice given by Buffet to his personal pilot, Mike Flint. Flint asked Buffet for career advice, leading to Buffet thinking of the 5/25 rule. Buffet asked Flint to list his top 25 career goals, pick the top five, and avoid the rest until the top five are achieved.
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.
Which index fund pays the most? ›
The Invesco S&P 500 High Dividend Low Volatility ETF has a 4.74% dividend yield, the highest among our recommendations, but its risk is average. Meanwhile, the iShares Core High Dividend ETF has a 4.09% dividend yield but an expense ratio of only 0.08%, much lower than the 0.3% ratio for the Invesco fund.
What is the most profitable index funds? ›
The Best US Stock Index Funds
- SPDR® Portfolio S&P 600 Sm Cap ETF. (SPSM)
- Fidelity ZERO Large Cap Index. (FNILX)
- Vanguard S&P 500 ETF. (VOO)
- Fidelity ZERO Extended Market Index. (FZIPX)
- Vanguard Total Stock Mkt Idx Adm. (VTSAX)
Bill Gates Portfolio: 7 Best Stocks to Buy Now
| STOCK | % OF PORTFOLIO | MARKET VALUE OF SHARES |
|---|
| Waste Management Inc. (WM) | 16.4% | $7.5 billion |
| Berkshire Hathaway Inc. (BRK.B) | 15.9% | $7.3 billion |
| Canadian National Railway Co. (CNI) | 15.8% | $7.2 billion |
| Caterpillar Inc. (CAT) | 5.9% | $2.7 billion |
3 more rowsMay 22, 2024
After months of waiting, investors finally learned the identity of the mystery stock Berkshire Hathaway has been scooping up over the past few quarters. The conglomerate added nearly 26 million shares of Chubb (NYSE: CB), the largest publicly traded property and casualty insurance company.
What stock does Warren Buffett own the most of? ›
Apple is Berkshire's largest public stock holding by far. Berkshire's $151 billion Apple stake is roughly four times larger than its second-largest holding. Buffett first bought Apple shares in the first quarter of 2016, and Apple's stock price is up more than 500% since the beginning of 2016.
Is Fidelity or Vanguard better? ›
While Fidelity wins out overall, Vanguard is the best option for retirement savers. Its platform offers tools and education focused specifically on retirement planning.
Should I buy FXAIX now? ›
Is FXAIX a Buy, Sell or Hold? Fidelity 500 Index Fund has a consensus rating of Moderate Buy which is based on 400 buy ratings, 100 hold ratings and 6 sell ratings. What is Fidelity 500 Index Fund's price target? The average price target for Fidelity 500 Index Fund is $206.43.
Is VOO too expensive? ›
VOO charges 3 basis points, while SPY charges 9 basis points. Both are very low cost compared to the average ETF in the US market.
What is a 30 70 investment strategy? ›
A 70/30 portfolio allocates 70% of your investment dollars to stocks and 30% to fixed income. So an investor who uses this strategy might have 70% of their money invested in individual stocks, equity-focused actively or passively managed mutual funds and equity-focused index or exchange-traded funds (ETFs).
What is the 70% rule investing? ›
Basically, the rule says real estate investors should pay no more than 70% of a property's after-repair value (ARV) minus the cost of the repairs necessary to renovate the home. The ARV of a property is the amount a home could sell for after flippers renovate it.
What is the 70 20 10 rule for investing? ›
The 70-20-10 budget formula divides your after-tax income into three buckets: 70% for living expenses, 20% for savings and debt, and 10% for additional savings and donations. By allocating your available income into these three distinct categories, you can better manage your money on a daily basis.
What are the Warren Buffett's first 3 rules of investing money? ›
What are Warren Buffett's biggest investing rules?
- 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.
