Warren Buffett is one of the most famous and successful investors in history, but his approach is surprisingly simple: Invest in quality companies, and hold them for as long as they remain good investments.
There’s one particular investment that Buffett has recommended for many years. Not only is this fund accessible for those who are brand-new to the stock market, but it also has an extraordinary track record of building long-term wealth.
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“The best thing” for most investors, according to Buffett
One of Buffett’s most highly recommended investments is the humble S&P 500 ETF.
He’s so sure of this investment that he even bet $1 million in 2008 that it could outperform a group of hedge funds over 10 years. He easily won that bet, with his S&P 500 fund more than tripling the average performance of the five actively managed funds.
Buffett doubled down on this investment during Berkshire Hathaway‘s 2020 annual meeting when discussing where to invest. “In my view,” he said, “for most people, the best thing to do is to own the S&P 500 index fund.”
In one of Berkshire’s annual letters to shareholders, he also noted that upon his passing, the trustee of his estate will invest 90% of his cash in an S&P 500 index fund for his wife.
A reliable powerhouse of an investment
The S&P 500 ETF is a popular core holding for many investors, and for good reason. The S&P 500 (SNPINDEX: ^GSPC) itself has a decades-long track record of surviving every recession, bear market, and crash it’s ever experienced. Not only that, but it’s also earned substantial long-term returns.
In the last two decades alone, the S&P 500 has faced the dot-com bubble burst, the Great Recession, the COVID-19 crash, and the 2022 bear market. Several of these downturns were among the most severe in U.S. history, and yet since January 2000, the S&P 500 has earned total returns of nearly 750%.
The S&P 500 ETF is still vulnerable to short-term volatility, which can be severe. During the Great Recession, for example, the S&P 500 lost more than 50% of its value. However, the index has proven time and time again that it can recover eventually.
The path to $1 million
It’s also possible to build life-changing wealth with consistent contributions. Historically, the S&P 500 itself has earned an average rate of return of around 10% per year. If you were to invest, say, $200 per month at that rate, here’s approximately how much you could accumulate over time:
