Warren Buffett Says to Buy This Vanguard ETF. It Could Turn $1,000 per Month Into $264,000 in 10 Years.

Key Points

• Warren Buffett believes most investors should avoid picking stocks and instead buy a low-cost ETF.

• Adopting a dollar-cost averaging strategy eliminates the need to correctly time the market.

• Investors shouldn’t be surprised if forward returns don’t resemble past gains.

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

It's probably safe to say that the world hasn't seen a better capital allocator than Warren Buffett. His incredibly long track record running Berkshire Hathaway speaks for itself, as his investment prowess transformed the company into a $1 trillion conglomerate.

Average investors are right to listen to Buffett's advice. And one of his recommendations is extremely simple. The Oracle of Omaha says to buy this Vanguard exchange-traded fund (ETF). It could turn a monthly $1,000 investment into $264,000 in a decade.

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Simple is best

Every investor wants to be like Buffett, picking individual businesses based on expert financial analysis skills. However, this is obviously not something everyone can do. Even professional money managers struggle to find success, with many funds lagging the overall market.

Buffett believes that most retail investors are better off taking a simpler approach. This means buying a low-cost ETF that tracks the performance of the S&P 500, such as the Vanguard S&P 500 ETF (NYSEMKT: VOO). It carries an extremely low expense ratio of 0.03%, which is probably why Buffett is so supportive of it.

What's more, investors are buying an ETF offered by a leading firm in the asset management industry that has been around since 1975. Vanguard had $11 trillion in total assets under management as of July 31, highlighting its tremendous scale and the amount of capital it's trusted to handle.

The Vanguard S&P 500 ETF tracks the performance of the S&P 500. Investors in the fund get exposure to 500 large and profitable companies, with tech behemoths like Nvidia, Microsoft, and Apple having big weights. However, there is still broad diversification, as all sectors of the economy are represented.

Owning this ETF essentially means that investors are betting on the ongoing growth and ingenuity of the U.S. economy. That doesn't mean there isn't international exposure. Many of the companies in the S&P 500 generate revenues from overseas markets. This can be beneficial as other countries potentially register more growth than the U.S. in the long run.

Stellar performance

In the past decade, the S&P 500 has generated a total return of 304% (as of Sept. 19). On an annualized basis, this translates to a gain of 15%. It's hard to complain with this performance, which has been driven by historically low interest rates, lots of passive capital flowing into the stock market, and the rise of massive tech companies.

If trailing-10-year returns (from August 2015 to August 2025) repeated over the next decade, investing $1,000 monthly into the Vanguard S&P 500 ETF would turn into $264,000 by September 2035. This proves that even small sums of money can result in huge returns over the long term.

This approach is considered dollar-cost averaging, and it works so well because investors are building a consistent habit of allocating capital to their portfolios. Plus, it lessens the importance of trying to correctly time the market, which is a losing proposition.

But to be clear, past returns provide no guarantee of future results. Looking out over the next decade, the Vanguard S&P 500 ETF could generate worse performance than it did since 2015. This is entirely in the realm of possibilities. One area of concern is the historically expensive valuation of the S&P 500, which might be one of the main reasons Buffett and Berkshire have been net sellers of stocks in recent years.

It's best to have realistic expectations. While the returns could be great, it's also possible that the S&P reverts back to its long-run average of 10% yearly gains. Either way, buying the Vanguard S&P 500 ETF on a monthly basis is perhaps one of the best things investors can do, at least in Buffett's opinion.

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Neil Patel has positions in Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, Microsoft, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.