This Warren Buffett Index Fund Could Turn $400 Per Month Into $868,200

Warren Buffett is one of the most successful investors in U.S. history. Under his control, Berkshire Hathaway shares have returned about 20% annually since 1965. And brilliant investments engineered by Buffett played an important role in that shareholder value creation.

Naturally, Buffett has become a popular source of inspiration for individual investors, and he has consistently advocated the same strategy. "Over the years, I've often been asked for investment advice," he wrote in his 2016 shareholder letter. "My regular recommendation has been a low-cost S&P 500 (SNPINDEX: ^GSPC) index fund."

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Investors can follow that advice by owning shares of the Vanguard S&P 500 ETF (NYSEMKT: VOO). And that strategy could turn $400 invested monthly into $868,200 over 30 years. Here are the important details.

The Vanguard S&P 500 ETF provides exposure to influential stocks like Apple, Nvidia, and Microsoft

The Vanguard S&P 500 ETF, like the benchmark S&P 500, tracks the performance of 500 large U.S. companies. The index fund includes value stocks and growth stocks from all 11 stock market sectors, covering about 80% of domestic equities and 50% of global equities by market value.

Put differently, the Vanguard S&P 500 ETF provides exposure to many of the most influential stocks on the planet. The top 10 positions in the index fund are listed by weight below:

1. Apple: 7.6%
2. Nvidia: 6.6%
3. Microsoft: 6.2%
4. Amazon: 4.1%
5. Alphabet: 3%
6. Meta Platforms: 2.5%
7. Tesla: 2.2%
8. Broadcom: 2.1%
9. Berkshire: 1.6%
10. JPMorgan Chase: 1.3%

Warren Buffett believes an S&P 500 index fund is the most sensible way for most investors to get stock market exposure because that strategy (1) requires virtually no work and (2) has consistently made money over long periods.

The S&P 500 has generated a positive return over every rolling 11-year period in the last three decades. That means investors that purchased an S&P 500 index fund at any point during that period turned a profit, provided they held the index fund for at least 11 years.

Additionally, Buffett thinks people that let financial professionals manage their money will ultimately realize worse returns than the S&P 500. "Huge institutional investors, viewed as a group, have long underperformed the unsophisticated index-fund investor who simply sits tight for decades," Buffett wrote in his 2014 letter to shareholders.

Historical data backs that assertion. Just 4% of large-cap funds beat the S&P 500 in the last five years, and only 2% of large-cap funds outperformed in the last two decades, according to S&P Global. In other words, the Vanguard S&P 500 ETF has consistently beat most professional money managers over long periods.

Image source: Getty Images.

How the Vanguard S&P 500 ETF could turn $400 per month into $868,200

The S&P 500 advanced 2,100% over the last three decades, compounding at 10.86% annually. That period encompasses such a broad range of economic and market conditions that investors can reasonably expect similar results in the next three decades. But I will assume a slightly more conservative return of 10.5% annually to add a margin of safety.

At that pace, $400 invested monthly in the Vanguard S&P 500 ETF would be worth about $78,300 after one decade, $291,000 after two decades, and $868,200 after three decades, assuming dividends are reinvested.

The Vanguard S&P 500 ETF has an expense ratio of 0.03%. That means shareholders will pay $3 annually on every $10,000 allocated to the fund. Investors would be hard-pressed to find a cheaper index fund that has consistently generated better returns. Indeed, the S&P 500 has outperformed virtually every other asset class over the last decade including real estate, precious metals, fixed income, and international equities.

As a final thought, investors need not choose between individual stocks and an S&P 500 index fund. Owning both gives your portfolio a chance to outperform if your stocks beat the S&P 500, while also limiting how badly you underperform if your stocks do worse than the S&P 500.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. JPMorgan Chase is an advertising partner of Motley Fool Money. Trevor Jennewine has positions in Amazon, Nvidia, Tesla, and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, JPMorgan Chase, Meta Platforms, Microsoft, Nvidia, S&P Global, Tesla, and Vanguard S&P 500 ETF. The Motley Fool recommends Broadcom and 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.