Warren Buffett has long said investors do not need to outguess the market to do well. In a 2013 shareholder letter, he said he would encourage any investor to buy a low-cost S&P 500 index fund, the kind of fund that gives broad exposure to U.S. businesses in one purchase.
The reason the search term keeps coming up is the math attached to it. If an investor puts in $3,000 at the start and then adds $300 every month for 20 years, a 10% average annual return can produce a much larger balance over time. That is the appeal of steady investing in a fund tied to the S&P 500, whose long-run average return has been about 10%.
Buffett’s name is attached to the idea because he has owned shares of the Vanguard S&P 500 ETF, the specific Vanguard fund most often linked to this recommendation. But the heart of his argument was broader than any one ticker. He wrote that an investor’s goal should be to own a cross-section of businesses that, taken together, are bound to do well, and he said a low-cost S&P 500 index fund will achieve that goal.
That advice carries extra weight because Buffett is better known for picking stocks than for telling investors to buy and hold a passive fund. Yet the recommendation fits the way he has described his own final instructions as well. He said that after his death, a trustee should place most of his cash into such a fund for the benefit of his wife, a quiet endorsement of diversification over stock-picking skill.
The timing also matters now because Buffett has stepped down as chairman of Berkshire Hathaway and remains chairman emeritus and a board member while Greg Abel became CEO at the start of the year. Berkshire Hathaway says Buffett will continue to offer his valued judgment and perspective, which keeps his investing views in focus even as the leadership title changes. For readers trying to decide what to do with new money, his message is unchanged: a low-cost S&P 500 index fund remains his plainest answer.
