Few investors are as renowned as Warren Buffett. His investing results speak for themselves, particularly his net worth of over $110 billion as of this month. That's why people listen closely when he gives investing advice.
And a great thing about Buffett's advice is that it's usually straight to the point. No bells and whistles, just sound investing strategies that have proved to be timeless. One of my favorite quotes is one that anyone can apply: "It is not necessary to do extraordinary things to get extraordinary results."
Here's how it can work.
Image source: Getty Images.
It could all be so simple
From the outside looking in, investing can seem a lot more complex than it is. It can be complex, but by no means does it have to be or should it be. Some think investing is analyzing complex charts that read like a foreign language or spending hours going through financial statements. For many investors, that's counterproductive.
To Buffett's point, you don't need to be an extraordinary investor to get extraordinary results. You need consistency and discipline. It's a lot easier said than done, but the results can speak for themselves. Money can already be an emotional topic; there's no need to add stress by overcomplicating investing.
One ETF can lead you to millionaire land
Part of simplifying investing is realizing you don't need to invest in tons of individual companies. A better approach is to invest in a low-cost S&P 500 exchange-traded fund (ETF). Buffett is often quoted as saying he believes that is the only investment the average person needs for retirement savings.
The S&P 500 is an index that tracks the 500 largest public U.S. companies. It has become the primary benchmark in the stock market, with any other company or fund measured against it. An S&P 500 ETF is a fund put together to mirror the index, and it trades on the stock exchange like a regular stock.
Buffett has long preached that consistent investments in an S&P 500 ETF are the surest way to secure a million-dollar retirement. His go to index fund (via Berkshire Hathaway's holdings) is the Vanguard S&P 500 ETF (VOO +1.47%).
NYSEMKT: VOO
Key Data Points
What makes the S&P 500 a great investment choice is that it checks many investment boxes at once. To begin with, it offers almost instant diversification. Since the ETF is market-cap-weighted, technology accounts for a lot of the fund, but it still manages to cover all 11 sectors:
- Communication services: 8.40%
- Consumer discretionary: 10.60%
- Consumer staples: 6.70%
- Energy: 4.10%
- Financials: 12.40%
- Health care: 13.40%
- Industrials: 8.60%
- Information technology: 28.30%
- Materials: 2.50%
- Real estate: 2.40%
- Utilities: 2.60%
Within those sectors are market leaders and blue chip stocks that can provide investors with a bit of long-term stability. Many view an investment in the S&P 500 as an investment in the broader U.S. economy. As the economy goes, so does the index a lot of times.
Proven long-term results
Maybe more important is this: Consistent investments in the S&P 500 have proved to produce great returns over a career. Since its inception, it has averaged around 10% annual returns over the long term.
Here's how $1,000 in monthly investments would stack up over time, averaging those same returns:
| Monthly Investment | Years Invested | Invested Value |
|---|---|---|
| $1,000 | 10 | $191,200 |
| $1,000 | 15 | $381,200 |
| $1,000 | 20 | $687,300 |
| $1,000 | 25 | $1.18 million |
| $1,000 | 30 | $1.97 million |
Source: author calculations. Totals rounded to the nearest hundred.
Past S&P 500 performance doesn't guarantee it'll continue that way. But if we assume the trend continues, investors can reach $1 million while personally investing much less. In our above example, someone would have invested $300,000 over 25 years and ended up with almost four times that amount.
Hitting $1 million by strictly saving is all but impossible for the average person. Hitting $1 million by consistently investing in a low-cost S&P 500 ETF is much more attainable. It doesn't take any extraordinary investing insight or skills -- just time.
Arguably, the greatest wealth-creation force in investing is compound earnings, which happens when the money you make on investments begins to make money on itself. For compounding to work its magic, though, it needs time. Those who consistently invest over long periods are often better off than those who invest over shorter time frames.
Start as early as you can, stay consistent, and let an S&P 500 ETF do the heavy lifting for you.
