Warren Buffett Says Buy This Brilliant Vanguard Index Fund. It Could Turn $500 Per Month Into $1 Million.

Warren Buffett is one of the most accomplished investors in American history. Berkshire Hathaway stock has returned 20% annually since he took control of the company in the 1960s, due in large part to the many savvy acquisitions and stock purchases he engineered over the years.

The S&P 500 (SNPINDEX: ^GSPC) is widely regarded as the single best benchmark for the U.S. stock market, and Warren Buffett has often said an S&P 500 index fund is the best way for the average investor to get exposure:

• "I recommend the S&P 500 index fund, and have for a long, long time to people," Buffett said at Berkshire's annual meeting in 2020.
• "In my view, for most people, the best thing to do is to own the S&P 500 index fund," Buffett said at Berkshire's annual meeting in 2021.

Buffett has even specifically recommended the Vanguard S&P 500 ETF (NYSEMKT: VOO). Here's how following his advice could turn $500 per month into $1 million over 30 years.

Image source: Getty Images.

The Vanguard S&P 500 ETF provides exposure to hundreds of companies critical to the global economy

The S&P 500 tracks 500 U.S. companies that must meet specific criteria at the time of inclusion, such as generally accepted accounting principles (GAAP) profitability, sufficient liquidity, and a minimum market capitalization of $20.5 billion. Its constituents span all 11 stock market sectors, representing about 80% of domestic equities and 50% of global equities by market value.

The Vanguard S&P 500 ETF lets investors spread money across the index, providing exposure to many of the most influential businesses in the world. The top 10 holdings in the fund are listed by weight below:

1. Apple: 6.7%
2. Microsoft: 6.2%
3. Nvidia: 5.6%
4. Amazon: 3.6%
5. Alphabet: 3.5%
6. Meta Platforms: 2.5%
7. Berkshire Hathaway: 2.1%
8. Broadcom: 1.9%
9. Tesla: 1.6%
10. Eli Lilly: 1.5%

Warren Buffett views an S&P 500 index fund as the best option for the average investor because it provides exposure to a "cross-section of businesses that in aggregate are bound to do well." Patient investors who buy and hold an S&P 500 index fund are virtually guaranteed to turn a profit, given enough time. The S&P 500 has generated a positive return over every rolling 11-year period in the last three decades.

Additionally, Buffett thinks people who let financial professionals manage their money will ultimately realize worse returns than the S&P 500. "Huge institutional investors, viewed as a group, have long underperformed the unsophisticated index-fund investor who simply sits tight for decades," Buffett wrote in 2014.

The Vanguard S&P 500 ETF could turn $500 per month into $1 million

The S&P 500 advanced 1,850% during the last three decades, compounding at 10.4% annually. That period encompasses such a broad range of economic environments that similar returns are probable over the next three decades.

At that pace, $500 invested monthly in the Vanguard S&P 500 ETF would be worth:

• $97,400 after 10 years
• $359,600 after 20 years
• $1 million after 30 years

For investors who wish to save more or less than $500 per month, the chart shows how different monthly contribution amounts would grow in the Vanguard S&P 500 ETF, assuming the underlying index returns 10.4% annually:

Data source: Investor.gov compound interest calculator. Amounts have been rounded down to the nearest $100.

The last item of consequence is the expense ratio. The Vanguard S&P 500 ETF has an expense ratio of 0.03%, meaning investors will pay $3 per year on every $10,000 invested in the fund. That makes the Vanguard ETF cheaper than the more heavily traded SPDR S&P 500 ETF Trust, which has an expense ratio of 0.0945%.

Investors might want to consider a combination approach

As a final though, investors interested in owning individual stocks can combine that approach with the Buffett-recommended strategy of owning an S&P 500 index fund. Owning both leaves room for outperformance if the individual stocks produce better returns than the S&P 500, but it also limits potential underperformance if the individual stocks generate worse returns.

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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. Trevor Jennewine has positions in Amazon, Nvidia, Tesla, and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Meta Platforms, Microsoft, Nvidia, Tesla, and Vanguard S&P 500 ETF. The Motley Fool recommends Broadcom 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.