1 Warren Buffett Index Fund Could Turn $100 Per Week into $1 Million

Warren Buffett has often said that S&P 500 index funds are the most logical way for most investors to gain exposure to the stock market. The Vanguard S&P 500 ETF (NYSEMKT: VOO) is one of many great options. In fact, Buffett owns shares in this S&P 500 index fund through Berkshire Hathaway.

Investors may want to sidelining that advice. Because buying the S & p 500 index fund is not much more exciting than buying individual stocks. But the index fund strategy can turn patient investors into stock market millionaires. This is the way it is.

S & P 500 is the u.S. economy’s metallist

The Vangard S & P 500 ETF measures the performance of the S & P 500 Index, which includes 500 large U.S. companies. According to Buffett, the S & P 500 “represents a tremendous cross section of the U.S. business as measured by market capitalization.” The index tracks the value and growth stocks of all 11 market sectors, which make it a good one for the broader U.S. economy.

In plain English, the Vanguard S&P 500 ETF allows investors to diversify their money across a wide range of blue-chip stocks. These include tech titans like Apple, consumer discretionary companies like Amazon, healthcare giants like Johnson & Johnson, and financial firms like Visa.

The S&P 500 consistently outperforms most professional money managers

The S&P 500 fund may lack the excitement of certain actions, but it is getting results. In fact, Buffett often said that an omniscient investor could actually outperform most professional CFOs by periodically purchasing an S&P 500 index fund. The data supports this theory. According to S&P Global, 93.4% of the largest domestic funds in the last 15 years have had a shortage of S&P 500. In other words, the vast majority of fund managers don’t beat the market.

Buffett once tested his conviction, betting $500,000 that an S&P 500 index fund could outperform a group of actively managed hedge funds over a 10-year period. Ultimately, Buffett faced five hedge funds, each run by a team of highly trained experts. The bet began in January 2008, the year the global financial crisis triggered the stock market crash, and ended in December 2017.

Long story short, Buffett won. His S&P 500 index fund beat all hedge funds. In fact, the best-performing hedge fund underperformed the S&P 500 index fund by 38 percentage points, while the worst-performing hedge fund underperformed by 123 percentage points.

An S&P 500 Index Fund can turn patient investors into stock market millionaires
The Vanguard S&P 500 ETF has had a total return of 212% over the past decade, or 12% annually. At this rate, investing $100 per week would turn out to be $91,000 in a decade, $374,000 in two decades, and $1.2 million in three decades.

Of course, $100 a week may be too much for some investors, and others may contribute more. The graph below shows how different weekly contribution amounts will grow over the next 10 to 40 years, assuming an annual (compound) rate of return of 12%.

Contribution amount 10 years, 20 years, 30 years, 40 years
$50 per week $45,600 $187,300 $627,400 $1.9 million
$75 per week $68,400 $281,000 $941,100 $2.9 million
$100 per week $136,800 $562,000 $1.8 million $5.9 million
$200 per week $182,500 $749,300 $2.5 million $7.9 million
Table by author. The dollar aggregates assume a compound annual return of 12%.

Here’s the bottom line: The Vanguard S&P 500 ETF can be a boring investment. But it can help impatient investors build multi-million dollar portfolios without doing much work. It also has an under-average expense ratio of 0.03%, which means annual fees on a $50,000 portfolio would be just $15. Most importantly, the peace of mind that the Vanguard ETF provides is invaluable.

The S&P 500 has weathered many recessions and bear markets throughout history, but the index has never failed to recover its losses. In other words, investors who own the Vanguard ETF long enough are virtually guaranteed a profit.

Sponsored by:

10 stocks we like better than the Vanguard S&P 500 ETF

When our team of analysts has stock advice, it’s worth listening to. After all, the newsletter they’ve published for over a decade, The Motley Fool Stock Advisor, has tripled the market. *

They just revealed what they believe are the ten biggest stocks investors can buy right now…and the Vanguard S&P 500 ETF was not one of them! That’s right, they think these 10 stocks are the best buys.

Watch all 10 procedures

*Stock Advisor returns as of April 10, 2023

John Mackey, former CEO of Whole Foods Market, an Amazon company, is on the board of directors of The Motley Fool’s. Trevor Jennewine holds positions at Amazon.com, the Vanguard S&P 500 ETF, and Visa. The Motley Fool holds and recommends Amazon.com, Apple, Berkshire Hathaway, S&P Global, Vanguard S&P 500 ETF, and Visa. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.