1 Surefire Warren Buffett Index Fund Could Turn $400 Per Month Into $902,000

Warren Buffett is renowned for his stellar track record as an investor and business leader. Since taking control of Berkshire Hathaway in 1965, the company’s stock has grown at 20% annually, with a combination of savvy acquisitions and brilliant equity investments. Buffett has also amassed a fortune exceeding $140 billion, according to Forbes.

Those bona fides have made him an authority on the stock market. Investors sift through his shareholder letters and study his trades in search of brilliant ideas. Yet I am willing to bet most investors ignore one of his most practical recommendations. Namely, Buffett has frequently advised investors to buy and hold an index fund that tracks the S&P 500 (^GSPC 0.97%).

“I recommend the S&P 500 index fund, and have for a long, long time, to people,” he told attendees at Berkshire’s annual meeting in 2021.

Admittedly, index funds are less exciting than stocks, but ignoring Buffett’s advice could be a costly mistake. About 80% of large-cap funds underperformed the S&P 500 over the last three years, meaning most professional money managers struggle to beat the S&P 500 consistently.

Here’s how Buffett’s advice could turn $400 per month into $902,000 for patient investors.

The S&P 500 includes popular stocks like Apple and Nvidia

The S&P 500 measures the performance of 500 large and profitable U.S. companies that cover about 80% of domestic equities and more than 50% of global equities by market capitalization. Accordingly, index funds that track the S&P 500 are basically ready-made portfolios that provide exposure to many of the most influential businesses in the world.

Investors interested in owning an S&P 500 index fund have several good options, but the Vanguard S&P 500 ETF (VOO 0.96%) is my personal favorite. The SPDR S&P 500 ETF Trust is traded in higher volume, but the Vanguard ETF is cheaper. It carries an expense ratio of 0.03%, meaning the annual fees on a $1,000 portfolio will total just $0.30.

The 10 largest positions in the Vanguard ETF are listed by weight below.

1. Apple: 6.9%
2. Microsoft: 6.7%
3. Nvidia: 6.2%
4. Alphabet: 3.9%
5. Amazon: 3.7%
6. Meta Platforms: 2.2%
7. Berkshire Hathaway: 1.7%
8. Broadcom: 1.5%
9. Tesla: 1.4%
10. Eli Lilly: 1.4%

In 2016, Buffett explained why he believes an S&P 500 index fund is a good option for almost any investor: “American business — and consequently a basket of stocks — is virtually certain to be worth far more in the years ahead.” An S&P 500 index fund is simply a basket of quality stocks.

The S&P 500 has been a surefire moneymaker over long periods

The S&P 500 was created in 1957. Since then, the index has generated a positive return over every rolling 20-year period, according to Crestmont Research. That means any investors who bought an S&P 500 index fund made money, regardless of when they bought shares, as long as they held the fund for at least two decades.

Moreover, the S&P 500 has consistently generated robust returns. It has outperformed virtually every other asset class over the last two decades, including real estate, precious metals, fixed income, and international equities, according to Morgan Stanley.

Likewise, during the last three decades, the S&P 500 returned 2,010%, growing at 10.7% annually. At that pace, $400 invested monthly in the Vanguard S&P 500 ETF would be worth $79,100 in one decade, $297,700 in two decades, and $902,000 in three decades.

Some readers may prefer to save more or less than $400 per month. The chart below details how much wealth different monthly contribution amounts would create, assuming an annual return of 10.7%.

Data source: Bankrate compound interest calculator. Note: Amounts have been rounded down to the next $100.

Patience is the key to making money in the stock market

The S&P 500 can be volatile over short periods. Since 1980, the index has suffered an average intra-year drawdown of 14%, according to Carson Group. That means the index tends to pull back sharply at least once per calendar year. But volatility tends to blend into the background over long periods.

As mentioned, the S&P 500 returned 10.7% annually over the last 30 years. The index achieved those gains despite suffering four bear markets and 11 stock market corrections. Similar ups and downs are probable in the future.

The key to making money with an S&P 500 index fund is patience and consistency. Be prepared to hold the fund for at least five years, and buy more shares periodically whether the market is going up or down.

Attempting to predict market peaks is a bad strategy that can cause investors to miss gains. For instance, between 1988 and 2023, the S&P 500 produced an average 12-month return of 13.4% when money was invested only at record highs. But the index produced an average 12-month return of 11.9% when money was invested on any random day, according to JPMorgan Chase.

In other words, investors who avoided buying an S&P 500 index fund on days when the index reached a new high could have underperformed their peers who showed no such reservations.

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. Suzanne Frey, an executive at Alphabet, 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. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. 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, JPMorgan Chase, Meta Platforms, Microsoft, Nvidia, 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.