Warren Buffett Recommends This 1 Investment to All Investors. Here’s How It Could Help Build a Million-Dollar Portfolio.
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Warren Buffett Recommends This 1 Investment to All Investors. Here’s How It Could Help Build a Million-Dollar Portfolio.
09 mins
Warren Buffett is known for his ability to pick a winning stock. This skill helped him score a win over 60 years as the chief executive officer of Berkshire Hathaway, delivering market-beating performance. Buffett retired from the job at the end of last year, but we still can look to his investing wisdom — it rings true over time — and apply it to our strategies.
Throughout his career, Buffett invested in a variety of stocks, from financials to healthcare and consumer goods names. And he left his successor, Greg Abel, with a portfolio led by market giants Apple, American Express, and Bank of America. You might consider these or other long-term Buffett holdings for your portfolio and generate a win if you hang on for a number of years — following Buffett’s long-term investing style.
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But there’s one investment in particular that Buffett has recommended to the non-professional investor. And this buy could help you build a million-dollar portfolio. Let’s find out more.
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Investing in this asset doesn’t require any particular skill, meaning it’s an easy option for a new investor — and represents a hassle-free option for the more seasoned investor. You don’t have to closely watch the earnings reports of a company or study how its market position evolves. Instead, you can buy this asset, turn your attention to other things, and hold on for the long term. It’s as simple as that.
This investment Buffett recommends is an S&P 500 index fund, such as the Vanguard S&P 500 ETF(NYSEMKT: VOO). Exchange-traded funds allow you to invest in many companies that have something in common: an industry or membership in a major index, for example. In this case, this purchase offers you exposure to every company in the S&P 500 — so it’s a bet on the prominent companies in the U.S.
“American business has done wonderfully over time and will continue to do so,” Buffett wrote in his 2013 letter to shareholders. He went on to say that the non-professional investor should aim to own shares in a variety of businesses that are likely to do well. “A low-cost S&P 500 index fund will achieve this goal.”
Buffett at the time said he believed so strongly in this investment that he’s directed a trustee to put 90% of his cash in an S&P 500 index fund upon his death for the benefit of his wife. In recent years, the Vanguard fund even appeared in Berkshire Hathaway’s holdings, though Buffett sold this position and another S&P 500 index fund in the fourth quarter of 2024.
It’s important to keep in mind that Buffett’s sale of the fund isn’t a negative sign. As a professional investor, he may have goals that differ somewhat from those of a retail investor. And, as mentioned, Buffett has emphasized why buying an S&P 500 index fund is a particularly smart move for retail investors.
So, now let’s get to the millionaire-maker part of this story. How can the Vanguard ETF help you build a million-dollar portfolio? Through the magic of compounding. By regularly adding to an investment, gains will compound, and this pattern may generate significant returns.
Here’s an example, considering the S&P 500 continues to deliver a 10% annual average return over time, as it’s done in the past. If you make an initial investment of $900 in the Vanguard fund and add $300 to it monthly for 35 years, your investment may reach more than $1 million. But don’t worry if your time horizon is shorter: Compounding may supercharge your investment’s growth even over a shorter period of time, and this, combined with a portfolio of quality stocks, could help you reach the million-dollar mark.
Any time is the right one to add this Buffett-recommended buy to your portfolio — and potentially offer yourself a huge push along the path to wealth.
Before you buy stock in Vanguard S&P 500 ETF, consider this:
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Bank of America is an advertising partner of Motley Fool Money. American Express is an advertising partner of Motley Fool Money. Adria Cimino has positions in American Express. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
