Warren Buffett is known as one of the greatest investors of all time. Many people seek to know his secrets and duplicate his success. It would be great to learn to invest as Warren Buffett to hit that billionaire status, but not all of us have the time, money, or resources to achieve the same success.
It may be more straightforward and easier to rely on an exchange-traded fund or ETF. Those usually have a mix of different companies that help make the fund, and it can be easily bought off the stock market and traded if need be.
Which ETF would Warren Buffett suggest to hit this million dollars?
Warren Buffett’s Favorite ETF
It is hard to say which is his favorite ETF. Warren Buffett owns two ETFs. One is Vanguard’s S&P 500 ETF, VOO. The other is SPDR S&P 500 ETF Trust, SPY. SPY and VOO track the S&P 500, a collection of the top 500 companies in the US.
These S&P 500 ETFs track the S&P 500 index, which allows investors to have an investment that matches the market.
For an investor, these two ETFs can make a good core of your portfolio or be the only investment in your portfolio. Warren Buffett believed in these two ETFs so much that in 2008, he bet five different hedge funds that the S&P 500 ETF VOO would have a better return in the ten years.
He was right; the ETF had a 126% return over those ten years, while the hedge funds averaged just 36% in that same period.
When the best investor in the world makes a bet, it is hard to bet against him, and you can see that your money will be safer and earn a higher return just by investing in VOO or SPY.
What Makes These Investments So Good?
You may wonder why invest in this ETF over another. There are many reasons, such as the S&P 500 having the top 500 companies in the US market. It has Apple, Microsoft, Tesla, Google, and Amazon. Then you have value companies like Johnson and Johnson and Home Depot.
Another reason could be the simplicity. All you have to do is buy the fund, continue to buy and hold it throughout the years, and let the market work. The fund will cleanse itself, and minimal work must be done. It is simple.
Lastly, these index fund-style ETFs have low costs. VOO has a 0.03% expense ratio, and SPY has a 0.09% expense ratio. So it costs you $3 to $9 per $10,000 invested in matching the market. A hedge fund manager or other fund managers may cost much like up to 1-2% of the portfolio, and you will still lose to these two ETFs.
How Does This ETF Hit a Million?
Compounding interest is a powerful thing. As the interest continues to build, the much you invest continues to grow. The S&P 500 has had an average return of 10.7% over the last 30 years, and if we stretch that to 50 years, it is an average return of 11.25%.
If you had $3736 invested with an S&P 500 ETF and never invested another dollar. It would take 59 years to hit one million dollars with a rate of 10% if you invest $300 a month, $10 a day. Then you would hit a million dollars in 34 years. With $10,000 a year invested, that money would hit a million in 24 years.
Investing just a little bit every month can help your money grow. Warren Buffett knows this best. As you work on creating a more extensive portfolio, keep the investment simple, and try to invest as much as you can. The earlier you start, the better to get that compounding interest to work for you.
Should You Invest In The S&P 500?
If you want to avoid researching or hiring someone, keep it simple. Invest in an ETF that tracks the S&P 500. You can even go for an excellent total market ETF. If Warren Buffett says to invest in it, then it is a good idea to trust him. He didn’t become the greatest investor of all time based on luck.
I’m Steve. I’m an English Teacher, traveler, and an avid outdoorsman. If you’d like to comment, ask a question, or simply say hi, leave me a message here, on Twitter (@thefrugalexpat1). Many of my posts have been written to help those in their journey to financial independence. I am on my journey, and as I learn more I hope to share more. And as always, thanks for reading The Frugal Expat.