Warren Buffett also recommends this index fund. His $450 per month could turn into $983,800.

Coached by billionaire Warren Buffett berkshire hathaway To incredible success.The company’s stock price has grown twice as fast as before. S&P500 Since he took over the reins in 1965, his main achievements have been due to his abilities as a businessman and investor.

Somewhat surprisingly, Buffett does not recommend Berkshire stock. Instead, he has consistently told investors to buy S&P 500 index funds. “I recommend the S&P 500 index fund, and I’ve been recommending it to people for a long time, and I’ve never recommended Berkshire to anyone,” Buffett said at the 2021 Berkshire Annual Meeting.

The investment strategy may not be exciting, but it’s a surefire way to make money for patient investors.Here’s how to do it Vanguard S&P 500 ETF (VOO 0.10%) $450 per month can turn into $983,800 over 30 years.

Vanguard S&P 500 ETF tracks hundreds of influential US stocks

The Vanguard S&P 500 ETF measures the performance of 500 of America’s largest companies. This index fund provides exposure to value and growth stocks in all market sectors, and its constituent stocks represent approximately 80% of U.S. stocks and 50% of global stocks by market capitalization. The top 10 holdings are detailed below.

1. Microsoft: 7.2%
2. apple: 6.6%
3. alphabet: 3.7%
4. NVIDIA: 3.7%
5. Amazon: 3.5%
6. Metaplatform: 2.1%
7. Berkshire Hathaway: 1.7%
8. Tesla: 1.3%
9. Broadcom: 1.3%
10. Eli Lilly: 1.3%

As explained in detail, the Vanguard S&P 500 ETF allows investors to diversify their funds across many of the most influential American companies. Buffett thinks that’s compelling. “It is virtually certain that the value of U.S. companies, and as a result, the basket of stocks, will be much higher in the coming years,” he said in a letter to his shareholders in 2016.

The S&P 500 has consistently rewarded patient investors

Buffett once said, “I don’t think the average person can pick stocks.” It has nothing to do with intelligence. Rather, Buffett believes that most people lack the patience and dedication necessary to pick good stocks. Business analysis is a skill that takes time to develop, and there is no substitute for experience.

And even with time and practice, beating the S&P 500 is difficult. Even professional money managers struggle to overcome challenges and beat the market. According to , only 14% of large-cap stocks have outperformed the S&P 500 over the past five years, and only 8% of funds have outperformed the S&P 500 over the past 15 years. S&P Global.

The secret to making money on the S&P 500 is patience. The index can go up or down in a given year, but the odds of a positive return increase dramatically the longer you hold it. The S&P 500 Index has been a profitable investment for any period of 20 years since the index was created in 1957. In other words, buying and holding an S&P 500 index fund for at least 20 years has historically been a surefire way to make money.

Vanguard S&P 500 ETF could turn $450 per month into $983,800 over 30 years.

The S&P 500 has returned 1,800% over the past 30 years, increasing 10.3% each year. This period includes enough different market conditions, from boom to bust, that investors can reasonably expect similar outcomes in the future.

In this scenario, assuming an annual return of 10.3%, investing $450 each month would grow to $91,300 after 10 years, $334,800 after 20 years, and $983,800 after 30 years.

Of course, some readers may not be able to save $450 per month, and others may want to save more. To accommodate these situations, the chart below shows how various monthly contributions grow over time, assuming an annual rate of return of 10.3%.

Calculations by the author via mdm.ca. Dollar amounts are rounded down to the nearest $100.

The final result is your expense ratio. The Vanguard S&P 500 ETF has a very low expense ratio of 0.03%, meaning that if he invests $1,000 in the fund, his annual fee will be only $0.30. For comparison, the average expense ratio for mutual funds and ETFs was 0.47% in 2022.

This is another reason why the Vanguard S&P 500 ETF is an attractive option. Investors will have a hard time finding cheaper alternatives with similar risk and reward profiles. Buffett is well aware of this, which is why he has consistently recommended S&P 500 index funds.