Warren Buffett Calls This Investment “The Best Thing” for Most People. History Says It Could Make You a Millionaire.
Warren Buffett is one of the most famous investors in history, so when he offers advice, it often pays to listen. And there’s one investment that he has recommended for decades.
“In my view, for most people, the best thing to do is to own the S&P 500 index fund,” he said during Berkshire Hathaway‘s 2020 annual meeting.
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This isn’t the first time Buffett has recommended this investment. In 2008, for example, he bet $1 million that the S&P 500 (SNPINDEX: ^GSPC) could outperform a group of five actively managed hedge funds. His investment earned total returns of nearly 126% over 10 years, compared with an average of 36% for the five hedge funds.
Not only is an S&P 500 index fund a relatively safe and consistent investment, but it could also help you build a million-dollar portfolio. Here’s how.
A long-term investment with a proven track record
While it’s impossible to say how any investment will perform in the short term, the S&P 500 itself has an impeccable long-term track record. The key is to stay invested for as long as possible.
Over the last century, 26% of the S&P 500’s one-year periods have ended in negative total returns, according to research from investment firm Capital Group. However, only 6% of the index’s 10-year periods have resulted in losses. In other words, the longer you hold an S&P 500 index fund, the lower your chances of losing money.
Even if the market is volatile, it’s still possible to build substantial wealth with enough time. Since 2000, the S&P 500 has faced the dot-com bubble, the Great Recession, a global pandemic, and the bear market of 2022. Yet it’s also delivered total returns of more than 700% in that time.
If you’d invested $10,000 in an S&P 500 index fund in January 2000, you’d have around $83,000 by today. With smaller monthly contributions, however, you can get closer to a $1 million portfolio.
How to become a stock market millionaire
Time and consistency are your two most valuable resources when building wealth in the stock market.
Historically, the S&P 500 itself has earned an average rate of return of around 10% per year. At that rate, here’s approximately how much you’d need to invest each month to reach $1 million, depending on how many years you can let your money grow.
Data source: Author’s calculations via investor.gov.
No matter how much you can afford to invest each month, getting started sooner rather than later is key. Even a few extra years can potentially add up to hundreds of thousands of dollars.
Investing in the stock market is one of the most effective ways to generate long-term wealth, and there’s a reason why the S&P 500 index fund comes highly recommended by Warren Buffett. With enough time, you could earn more than you might think with this investment.
Should you buy stock in S&P 500 Index right now?
Before you buy stock in S&P 500 Index, consider this:
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Katie Brockman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.
Warren Buffett Calls This Investment “The Best Thing” for Most People. History Says It Could Make You a Millionaire. was originally published by The Motley Fool