Warren Buffett Loves This Low-Cost ETF. History Says It Could Turn $200 per Month Into $1 Million.
Buffett's favorite investment for his heirs could help you build $1 million, $200 at a time.
Warren Buffett has suggested that most of his family's inheritance should be invested in a low-cost Vanguard S&P 500 ETF (VOO). This fund comprises 90% of the portfolio with the remaining 10% in short-term government bonds. The ETF mirrors the composition of the S&P 500 index, providing broad exposure to 500 large-cap U.S. companies.
Historical data indicates that investing $200 per month in the Vanguard S&P 500 ETF could potentially grow to $1 million after 37 years, assuming an average annual return of 10.7%. It is crucial to note that dividends, which have contributed to approximately one-third of the index's total returns over the past century, are reinvested into the fund.
Buffett's endorsement stems from his belief in the time-tested strategy of owning a diversified portfolio of companies, rather than trying to pick individual winners. He famously stated that the non-professional investor should not aim to choose individual stocks, but instead, should invest in a broad cross-section of businesses that are likely to perform well.
In 2007, Buffett even bet $1 million that a low-cost S&P 500 index fund would outperform hedge fund managers over a 10-year period, a bet he won. However, it is essential to acknowledge that there is no guarantee that this investment approach will result in the desired returns in the future.
Despite the potential risks, the Vanguard S&P 500 ETF's low expense ratio (0.03%) and its ability to mitigate the impact of fees on returns make it an attractive investment option. Moreover, regularly investing small amounts over time allows investors to benefit from both market upswings and downturns.
While it is never too early to start investing, Buffett has demonstrated that the benefits of this strategy become more pronounced as one ages. Roughly 99% of Buffett's wealth was accumulated after he turned 65, proving that it is never too late to begin investing and potentially amass significant wealth.
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