Warren Buffett Says Buy This Index Fund, and Here's How It Could Turn $500 Per Month Into $1 Million

Globe and Mail

10 hours ago

Warren Buffett is the CEO of the Berkshire Hathaway holding company, where he oversees a number of wholly owned subsidiaries and a $281 billion portfolio of publicly traded stocks and securities. He plans to step down at the end of 2025, capping off a stellar run of success that dates back to 1965.
Had you invested $1,000 in Berkshire stock when Buffett took the helm 60 years ago, you would have been sitting on a whopping $44.7 million at the end of 2024. But he's a seasoned expert who knows exactly what to look for when he's buying stocks, so the average retail investor might struggle to replicate his returns.
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Therefore, Buffett often recommends buying low-cost exchange-traded funds (ETFs) that track indexes like the S&P 500 (SNPINDEX: ^GSPC). The Vanguard S&P 500 ETF (NYSEMKT: VOO) is one he's suggested by name in the past, and it's one of the most cost-effective options.
The Vanguard S&P 500 ETF tracks the S&P 500 by investing in exactly the same companies, and if history is any guide, it could turn $500 per month into $1 million over the long term. Here's how.
A great index fund for investors of all experience levels
The S&P 500 is made up of 500 different companies, and they have to meet strict criteria to be included. Each company must have a market capitalization of at least $20.5 billion, and the sum of their earnings (profits) must be positive over the most recent four quarters. But even after ticking every box, a special committee has the final say over which companies make the cut.
The 500 companies in the S&P 500 come from 11 different sectors of the economy. Some sectors have a higher representation than others because the index is weighted by market capitalization, which means the largest companies have a greater influence over its performance than the smallest.
That's why the information technology sector has a massive weighting of 30.4%. It's home to the world's three largest companies -- Microsoft, Nvidia, and Apple, which have a combined market cap of $10 trillion.
The table below breaks down the top five sectors in the Vanguard S&P 500 ETF, their weightings, and some of the popular stocks within them:
Data source: Vanguard. Portfolio weightings are accurate as of April 30 and are subject to change.
Artificial intelligence (AI) is a dominant theme in the stock market right now because it's impacting almost every sector of the S&P, especially information technology, thanks to companies like Nvidia and Microsoft. But Amazon, Tesla, Alphabet, Meta Platforms, and even Netflix are using AI in unique ways to supercharge their various businesses.
But diversification is the main reason the S&P 500 is the most widely followed U.S. stock market index. Per the above table, the financial and healthcare sectors make up a combined 25% of the S&P, and the index also offers investors exposure to the industrial, energy, and even real estate sectors.
As I mentioned earlier, the Vanguard S&P 500 ETF is one of the cheapest ways to invest in the benchmark index. It features an expense ratio of just 0.03%, meaning an investment of $10,000 will incur an annual fee of just $3. Vanguard says the average expense ratio of similar ETFs across the industry is a whopping 25 times higher at 0.75%, which can detract from investors' returns over the long run.
Turning $500 per month into $1 million
The S&P 500 plunged by 19% from its record high earlier this year on the back of simmering global trade tensions that were triggered by President Trump's tariffs. But volatility is a normal part of the investing journey because the index suffers a decline of 10% or more every two and a half years, on average, and investors can expect a bear market decline of 20% every six years or so (according to Capital Group).
But even after accounting for every sell-off, correction, and bear market, the S&P 500 has delivered a compound annual return of 10.3% (including dividends) since it was established in 1957.
Based on that return, investors who deploy $500 per month into the Vanguard S&P 500 ETF could join the millionaires' club within 30 years:
Monthly Investment
Balance After 10 Years
Balance After 20 Years
Balance After 30 Years
$500
$105,595
$398,682
$1,216,040
Calculations by author.
Past performance isn't a reliable indicator of future results, so there is no guarantee the S&P will continue to deliver annual returns of 10.3%. But forces like AI could add trillions of dollars in market cap to some of the most influential companies in the index, which would support further gains.
Nvidia CEO Jensen Huang predicts AI data center spending will reach $1 trillion per year by 2028, which is great news for his company and every other semiconductor stock in the S&P. Then there are AI subsegments like autonomous driving and robotics, which could be trillion-dollar opportunities on their own.
But even if it takes a little longer than 30 years to turn $500 per month into $1 million, the S&P 500 is still likely to be significantly higher by then, so investors who start their investing journey today will almost certainly be better off than those who remain on the sidelines.
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JPMorgan Chase is an advertising partner of Motley Fool Money. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, 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. 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. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, JPMorgan Chase, Meta Platforms, Microsoft, Netflix, Nvidia, Pfizer, Tesla, Vanguard S&P 500 ETF, and Visa. The Motley Fool recommends Johnson & Johnson 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.