Warren Buffett Says to Buy This Kind of ETF. One Could Turn $1,000 Per Month Into $252,000 in 10 Years.
Warren Buffett is a phenomenal stock picker, but he recommends most people adopt a passive approach.
Investors who use a dollar-cost averaging strategy could reap huge financial gains over the long term.
The S&P 500's valuation is high, but that shouldn't stop investors from putting money to work.
10 stocks we like better than Vanguard S&P 500 ETF ›
Warren Buffett is viewed as one of the greatest investors ever. That's because his expertise at capital allocation while running Berkshire Hathaway has resulted in a tremendous track record. The conglomerate has returned nearly 20% annualized for about six decades.
While the average investor wants to emulate the Oracle of Omaha's success, even Buffett says that the best course of action for most people is to take a totally different approach. At Berkshire's 2021 annual meeting, he said that buying an S&P 500 index fund is a smart way to benefit from the stock market's growth over time. And even small sums of money can balloon into a massive amount with patience and discipline.
Following Buffett's advice, investors should consider buying one Vanguard exchange-traded fund (ETF) that could turn $1,000 per month into $252,000 in 10 years.
Image source: Getty Images.
Dollar-cost averaging mixed with compounding
The stock market has had a wonderful run in recent memory. In the past decade, the S&P 500 index has produced a total return of 255%, a figure that assumes dividends were reinvested. That translates to an annualized return of 13.5%, well ahead of the index's long-term average of a 10% yearly gain.
Investors can buy the Vanguard S&P 500 ETF (NYSEMKT: VOO) to play this trend. It tracks the performance of the stocks in the S&P 500 and it's offered by a very reputable firm that not only has trillions in assets under management, but that's been around for five decades. That should give investors some peace of mind.
While the past never guarantees what will happen in the future, if the next 10 years looks like the last 10, investors who allocate $1,000 on a monthly basis to the Vanguard S&P 500 ETF over the next 10 years ($120,000 total) would see their balance reach a whopping $252,000 in the summer of 2035. This is a dollar-cost averaging approach, which requires investors to invest a certain amount at a consistent interval no matter what the market is doing at that particular time. It allows investors to take advantage of different entry valuations.
The Vanguard S&P 500 ETF has an expense ratio of only 0.03%. I'm sure this is another factor that Buffett appreciates, as he has a disdain for high-priced money managers that tend to underperform the market.
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