You don’t have to be a stock-picking genius to build a huge fortune.
There is one investment that Buffett thinks is worth buying.
It is a common myth that people who are successful in the stock market are geniuses and have the ability to make the right businesses. Sure, if you have this talent, you can achieve great results with your portfolio. But if you don’t have this ability, don’t worry.
There is another investment option that can help you create great long-term wealth. And if you’re still not convinced, consider this: It’s such a good investment that even billionaire Warren Buffett is a fan of it.
Invest in the broad market
Warren Buffett said that investing in an S&P 500 index fund is a solid bet for ordinary investors. To be clear, it’s not like Buffett has to rely on index funds. The man knows how to pick stocks, as evidenced by the billions of dollars he has accumulated over his lifetime. That is why it makes more sense for him to select individual companies.
Instead, Buffett believes that S&P 500 index funds are a good option for people who don’t know much about picking stocks or who don’t want to risk putting their money in the wrong companies. That is why he is worth investing in these funds.
If you’re not familiar with index funds, these are passively managed funds whose goal is to outperform the benchmarks they’re tied to. When you buy shares in an S&P 500 index fund, you effectively own a stake in 500 different companies.
That’s good because it helps diversify your portfolio. And a diversified portfolio can help you minimize losses in turbulent market phases and increase your long-term wealth.
How much wealth are we talking about here? Since 1957, the S&P 500 has produced an average annual return of about 10.5%. But that doesn’t mean the index has performed well every year since 1957. (Remember the financial crisis?) Rather, that 10.5% return makes for strong and weak years.
If you invest $250 a month in an S&P 500 index fund for the next 40 years, you could get the same return. And if so, you’ll end up with a $1.5 million purse. That’s not too bad, especially when you consider someone who doesn’t know much about stock picking.
Learn from one of the greats
Warren Buffett has shown that he is more than capable of beating the market. But that doesn’t mean the average investor can do the same. That’s why he recommends investing money in an S&P 500 index fund. And if he follows his advice, chances are he’ll be pleased with the outcome.
Of course, if you’re confident you can build a stock portfolio that will outperform the broader market, you can. But if you prefer to play it safe, there’s nothing wrong with listening to the words of someone who clearly has a knack for making wealth.
The article Could this advice from Warren Buffett be your ticket to a million dollar portfolio? first appeared in The Motley Fool Germany.
This article was written by Maurie Backman and was published on Fool.com on 03/13/2022. It has been translated so that our German readers can join the discussion.
Motley Fool Germany 2022