Is growth your New Year’s resolution? This unstoppable Warren Buffett index fund can turn $75 a month into $50,000

of S&P500 It recently hit a new all-time high, confirming that we are entering a new bull market. The index is currently up more than 30% from its October 2022 bear market lows. With the bull market supporting growth, today is the perfect time to focus on strengthening your portfolio and paving the way for long-term profits. What should you do to maximize your portfolio’s potential?

Take advice from investment giant Warren Buffett.as chairman berkshire hathaway, often referred to as the Oracle of Omaha, has helped achieve nearly 20% compound annual growth over 57 years thanks to his excellent stock picks. But Buffett’s multibillion-dollar portfolio also includes another asset type that he wholeheartedly recommends to other investors.

Buffett’s portfolio includes two S&P 500 index funds. SPDR S&P 500 ETF Trust (spy -0.13%) And that Vanguard S&P 500 ETF (VOO -0.06%). And he believes your portfolio could benefit from one of these funds that track the performance of an index. So if growth is one of your New Year’s resolutions, set aside $75 a month and see how it turns into $50,000.

build wealth over time

First, it’s important to note that index funds aren’t magical overnight and can help you build wealth over time. The idea is to invest regularly in a particular fund (here I’ll use his SPDR S&P 500 ETF as an example) and reap the benefits after a few years. You will benefit from compound interest, the idea that profits generate further profits.

But before we get into the math behind all of this, let’s consider why Buffett advises adding index funds to your portfolio. In his 2013 letter to shareholders, Buffett wrote that he believes long-term investments in S&P index funds will outperform the returns achieved by most individual investors. That’s why, in his will, he asks his trustees to put 90% of the cash in an S&P 500 index fund for Buffett’s wife and 10% in short-term Treasuries.

Stock picking is a great way to create wealth, and most blue-chip companies reward you over the long term. However, certain stocks may decline and never recover, and investors’ returns could be harmed if they invest too much in these companies. History has shown that if you invest in assets that track the S&P 500, you don’t have to worry about that.

That’s because even after the worst of the bear market, the benchmark has rebounded and continues to grow. In fact, his average annual return over 50 years of the market was 10%. And the SPDR S&P 500 Fund has been tracking these movements since its inception.

top quality company

Why is the S&P 500 so successful? Because its most important members are top-tier companies that are known to grow over time. Investing in an index tracker gives you access to all these companies. The technology sector is currently the most heavily weighted sector in the index and the funds that track it, at over 29%, including top companies such as: apple and Amazon.

However, indexes and funds include many sectors and companies, and this diversification is another factor that reduces risk and increases the likelihood of success.

Of course, if you invest in an index fund for a short period of time, you may lose, but if you invest for the long term, you are more likely to win. Long-term means at least five years, but generally speaking, the longer you stay invested, the more likely you are to win big. Buffett has said that his ideal investment horizon is “forever.”

How this strategy can help you

Now let’s move on to the math and see how this works. If you invest $75 per month in the SPDR S&P 500 for 20 years, your investment could grow to more than $51,500, taking into account the effect of compound interest and assuming a 10% rate of return. For returns over $33,500, you’ll contribute a total of $18,000.

And the good news is that you don’t have to invest a lot of money every month. From the example used above, you can easily increase or decrease the amount you invest each month. Even with a small budget, this strategy can work for any investor, as it is likely to yield excellent results over time.

Collecting tens of thousands of dollars in returns with minimal monthly commitment sounds like a pretty good deal. And definitely, like Warren Buffett, it’s the way to achieve your 2024 New Year’s resolutions and get this new bull market off to a good start.