The stock market has seen significant ups and downs in recent months, with major indexes experiencing wild fluctuations. As tariff policies shift frequently and experts raise concerns about their impact on jobs and the economy, many investors are left uncertain about the future.
Yet, there’s one investment that has the endorsement of Warren Buffett, the legendary investor. He claims it’s a smart buy for nearly everyone. With the right strategy, this investment could potentially transform a few hundred dollars each month into $1 million or more, even amid stock market volatility.
A Stable Yet Powerful Investment
During Berkshire Hathaway’s 2020 annual meeting, Buffett shared insights on his investing strategy and offered recommendations for fellow investors. He stated, “For most people, the best thing to do is to own the S&P 500 index fund.”
This isn’t the first time Buffett has advocated for the S&P 500 index fund. Back in 2008, he wagered $1 million that this type of investment would outperform a selection of actively managed hedge funds over a decade.
The S&P 500 index fund delivered total returns of nearly 126% during that time, while the five hedge funds averaged returns of only around 36%.
An S&P 500 index fund encompasses all the stocks from the S&P 500 (^GSPC), which features 500 of the largest and most robust companies in the world.
The index includes only the most resilient companies with a history of long-term growth, making them more likely to weather periods of volatility.
Over the last 25 years, the S&P 500 has achieved total returns exceeding 300%, despite facing significant downturns like the dot-com bubble, the Great Recession, the COVID-19 crash, and the bear market of 2022.
While there are no guarantees that the S&P 500 will continue to thrive in the event of another recession or market crash, its historical resilience suggests a promising future.
Building a Million-Dollar Portfolio
Even a relatively safe investment like the S&P 500 index fund can help you achieve a $1 million portfolio. How much you need to contribute each month will largely depend on your timeline.
Historically, the S&P 500 has achieved a compound annual growth rate of around 10%. This means that over the long term, the index’s annual returns have averaged about 10% per year.
While past performance is no guarantee of future results, the S&P 500 has nearly a century’s worth of history backing these returns. Even if we encounter a severe bear market or recession, holding your investment for a decade or two can significantly mitigate risk.
For example, if you invest in an S&P 500 index fund with an average annual return of 10%, here’s a rough estimate of what you’d need to invest each month to reach $1 million, depending on your timeline:
Generally, the earlier you start investing, the easier it will be to build significant wealth. If you’re contemplating whether to invest now or wait a few years, starting today could mean contributing hundreds of dollars less each month to meet your goal.
Investing in an S&P 500 index fund is one of the safest ways to enter the stock market, and it comes highly recommended by Buffett. By investing whatever you can afford and allowing your money to grow over time, you could become a stock market millionaire with minimal effort.
