This investment is part of Mr. Buffett’s portfolio.
Warren Buffett is known for his stock picks, choosing good long-term companies that are trading at reasonable or very low prices and holding them for the long term. Using this strategy, he has helped Berkshire Hathaway’s portfolio achieve nearly 20% compound annual returns over the past 58 years. This compares to a compound annual increase rate of 10% for the S&P 500 index.
But Buffett also believes strongly in an alternative investment method that is much easier than stock picking. This investment method requires no research or special knowledge about specific companies or industries, and has proven to be a winner over time. In fact, Buffett himself owns this type of asset, which he suggests is an investment that complements his carefully selected stock portfolio and is ideal for non-professional investors. . Using history as a guide, this asset could turn $300 a month into $1 million. Let’s take a closer look.
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bet on stock market leaders
So what is this Buffett-approved strategy? It’s an investment in an S&P 500 index fund, a move that allows you to bet on all the companies currently supporting the U.S. economy. Buffett has SPDR S&P 500 ETF Trust (SPY -0.30%) and Vanguard S&P 500 ETF in his portfolio. Both are great investments, but we’ll use the SPDR fund as an example.
These funds contain the same companies in the S&P 500 with equal weights and therefore track the performance of the index. Because the index’s purpose is to measure the performance of the key leaders of its time, the stocks included are reviewed quarterly, and additions and deletions are announced during that review. This year, for example, the index called for participation from high-growth technology companies Palantir Technologies and Super Micro Computers.
This means that when you invest in the S&P 500 through an index fund, you are always investing in the most prominent companies of the day, and the sectors that are making the most money. For example, tech stocks have a weight of 32%, making them the largest weight of the index and the funds that track it. The SPDR fund’s top companies include Apple, Nvidia, and Microsoft, each accounting for more than 6% of the fund.
At the same time, these funds feature positions in 10 other industries, providing tremendous diversification. This allows you to benefit from the top players in many fields without becoming an expert in these companies or fields.
Advice from Warren Buffett
A non-professional investor’s goal should be to “own a variety of businesses that are sure to be collectively successful,” Buffett wrote in a letter to shareholders several years ago. “A low-cost S&P 500 index fund could achieve this goal.” (ETFs (exchange traded funds) have fees, as seen in their expense ratios. Ideally, they should have fees less than 1%. Ginger, SPDR falls into this category with a fee of 0.09%.
Now, this all sounds great, but how can you reach $1 million? This is thanks to your monthly investments in the fund and your commitment to doing this over the long term, with compound interest. is realized through the magic of Assume you initially invest $5,000 in the SPDR S&P 500 ETF Trust and then invest $300 each month for 35 years.
Historically, the S&P 500 has delivered an average annual return of about 10% since its founding in the late 1950s as an index of 500 companies. If this situation continues, by the end of the 35-year investment period, the total investment will be over $1 million. It’s a great strategy that requires no research or time commitment, just a monthly financial contribution.
Now you may be asking yourself, “What if I don’t have $5,000 upfront or $300 to invest each month?” – Don’t worry. This strategy can be used with much smaller financial commitments and still potentially result in significant growth. For example, an initial investment of $500 and monthly contributions of $200 could generate returns of more than $600,000 over 35 years.
Although Buffett has clearly proven his strength as a stock picker, he still believes that investing in the S&P 500 is necessary to increase your chances of winning. And the great news is that you don’t have to be an expert investor or a billionaire to add this move to your repertoire, and you have the potential to grow your wealth over the long term, just like Buffett.
Adria Cimino has no position in any stocks mentioned. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, Microsoft, Nvidia, Palantir Technologies, and Vanguard S&P 500 ETFs. The Motley Fool recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
