Investing in the stock market is one of the simplest, most effective ways to build long-term wealth, and even novice investors can make a lot of money with the right strategy.
An exchange-traded fund (ETF) can be a fantastic option for new and seasoned investors, especially those looking for a low-effort investment. An ETF is a basket of securities bundled together into a single fund, meaning you’ll instantly own a stake in dozens or hundreds of stocks with just one investment.
There are countless ETFs to choose from, and not all are safe investments. While there’s no single correct way to invest, there’s one particular ETF that’s safer, more reliable, and highly recommended by Warren Buffett. Here’s how it could help you turn $300 per month into $976,000 or more.
Buffett’s highly recommended investment
If you’re looking to better protect your portfolio while still seeing significant earnings over time, an S&P 500 ETF could be a fantastic option. An S&P 500 ETF tracks the S&P 500 index, meaning it includes the same stocks as the index itself and aims to mirror its performance over time.
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).
He also highly recommends this type of investment, even betting $1 million back in 2008 that an S&P 500 fund could outperform a group of actively managed hedge funds. He easily won that bet, with his investment earning total returns of around 126% over 10 years, compared to the five hedge funds’ average return of 36% in that time.
A safe yet powerful ETF
There are never any guarantees when it comes to the stock market, but an S&P 500 ETF is about as close as you can get to guaranteed positive long-term returns.
The index itself has a decades-long history of recovering from even the most severe downturns. Also, because the index contains stocks from 500 of the largest and strongest U.S. companies, the S&P 500 ETF carries less risk than many other investments. While all stocks are subject to short-term volatility, the stocks within the S&P 500 are more likely to rebound and experience long-term growth.
In fact, as long as you keep a long-term outlook, it’s historically been nearly impossible not to make money with this investment. Analysts at Crestmont Research examined the S&P 500’s historical performance and found that every single 20-year period has ended in positive total returns. This means that if you’d invested in an S&P 500 fund at any point and held it for 20 years, you’d have made money.
Turning $300 per month into $976,000
Past performance doesn’t predict future returns, so there’s no way to say for certain how the S&P 500 will perform over time.
That said, the market itself has earned an average rate of return of around 10% per year over the past 50 years. While there are no guarantees it will continue with that track record, there’s a good chance it will see similar returns over the coming decades.
Let’s say that your investment is earning 10% average annual returns, in line with the market’s historic performance. If you were to invest $300 per month, here’s approximately how much you could accumulate over time:
|
Number of Years |
Total Portfolio Value |
|---|---|
|
20 |
$206,000 |
|
25 |
$354,000 |
|
30 |
$592,000 |
|
35 |
$976,000 |
Data source: Author’s calculations via investor.gov.
To reach $976,000 in total savings, you’ll need to invest consistently for around 35 years. But if you have more time to let your money grow (or if you can afford to invest more per month), you could earn even more than that.
The S&P 500 ETF comes highly recommended by Warren Buffett, and for good reason. Not only is it safer than many other investments, but it also has a long history of earning positive returns. If you’re looking for a hands-off investment that could help you make a lot of money over time, the S&P 500 ETF could be a fantastic choice.
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Katie Brockman has positions in Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Berkshire Hathaway and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
This Warren Buffett ETF Could Turn $300 Per Month Into $976,000 While Barely Lifting a Finger was originally published by The Motley Fool
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