Investing in the stock market is one of the easiest and most effective ways to build long-term wealth, and even novice investors can make a lot of money with the right strategy.
An exchange-traded fund (ETF) can be a fantastic option for new and experienced investors, especially those looking for a low-effort investment. An ETF is a basket of securities bundled into a single fund, meaning you instantly own a share of dozens or hundreds of stocks with just one investment.
There are countless ETFs to choose from and not all are safe investments. While there is no single right way to invest, there is one particular ETF that is safer and more reliable and is highly recommended by Warren Buffett. Here’s how you can turn $300 a month into $976,000 or more.
Buffett’s highly recommended investment
If you want to better protect your portfolio while generating significant returns over time, a S&P 500 ETF could be a fantastic option. An S&P 500 ETF tracks the S&P 500 index, meaning it includes the same stocks as the index itself and aims to reflect its performance over time.
Through its holding company Berkshire HathawayWarren Buffett owns two S&P 500 ETFs – the Vanguard S&P 500 ETF (NYSEMKT: FLIGHT) and that SPDR S&P 500 ETF Trust (NYSEMKT: SPY).
He also highly recommends this type of investing, even betting $1 million in 2008 that an S&P 500 fund could outperform a group of actively managed hedge funds. He won that bet handily, as his investment returned a total return of about 126% over a ten-year period, compared to the average return of the five hedge funds over that period of 36%.
A safe yet powerful ETF
When it comes to the stock market, there are never guarantees, but an S&P 500 ETF is as close to a guaranteed positive long-term return as you can get.
The index itself has a decades-long history of recovering from even the most severe downturns. Because the index also includes stocks from 500 of the largest and strongest U.S. companies, the S&P 500 ETF carries less risk than many other investments. While all stocks are subject to short-term volatility, stocks in the S&P 500 are more likely to recover and experience long-term growth.
In fact, in the past this was almost impossible as long as one maintained a long-term perspective not make money with this investment. Analysts at Crestmont Research examined the historical performance of the S&P 500 and found that every single 20-year period ended with positive total returns. That means if you had invested in an S&P 500 fund at any point and held it for 20 years, you would have made money.
$300 per month becomes $976,000
Past performance does not predict future returns, so it is impossible to say with certainty how the S&P 500 will perform over time.
However, the market itself has returned an average of around 10% per year over the last 50 years. While there’s no guarantee that this track record will continue, there’s a good chance the company will deliver similar returns for decades to come.
Let’s assume that your investment generates an average annual return of 10%, which is in line with the historical performance of the market. If you were to invest $300 per month, you could accumulate something like this over time:
|
number of years |
Total value of the portfolio |
|---|---|
|
20 |
$206,000 |
|
25 |
$354,000 |
|
30 |
$592,000 |
|
35 |
$976,000 |
Data source: Author’s calculations via investor.gov.
To reach a total savings of $976,000, you’ll need to invest consistently for around 35 years. But if you have more time to let your money grow (or if you can afford to invest more per month), you could earn even more.
The S&P 500 ETF is highly recommended by Warren Buffett, and for good reason. Not only is it safer than many other investments, but it also has a long history of generating positive returns. If you’re looking for a straightforward investment that can make you a lot of money over time, the S&P 500 ETF could be a fantastic choice.
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Katie Brockman holds positions in the Vanguard S&P 500 ETF. The Motley Fool holds positions in and recommends Berkshire Hathaway and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
This Warren Buffett ETF Could Turn $300 a Month Into $976,000 Without Lifting a Finger was originally published by The Motley Fool