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The last few months have been rocky for the stock market, as major indexes have fluctuated wildly -- surging, plunging, and then surging once again.
With tariff policies changing by the day and experts warning about the impacts those tariffs may have on the job market and economy, many investors are unsure about what to expect going forward.
However, there's one Warren Buffett-approved investment that the legendary investor has said is a smart buy for nearly everyone. And with the right strategy, it could potentially turn a few hundred dollars per month into $1 million or more -- even accounting for any future stock market volatility.
A stable yet powerful investment
During
Berkshire Hathaway
's 2020 annual meeting, Buffett discussed his investing strategy as well as his recommendations for other investors. While he notes that there are many different approaches out there, he says that "for most people, the best thing to do is to own the S&P 500 index fund."
This isn't the first time Buffett has recommended the S&P 500 index fund. In 2008, he made a $1 million bet that this type of investment could outperform a selection of actively managed hedge funds over 10 years. The S&P 500 index fund earned total returns of nearly 126% in that time, while the five hedge funds averaged returns of only around 36%.
An S&P 500 index fund includes all of the stocks from the
S&P 500
(SNPINDEX: ^GSPC)
itself, which is made up of 500 of the largest and strongest companies in the world. Only the most durable companies with histories of long-term growth are included in the S&P 500, making them more likely to survive periods of volatility.
In the last 25 years alone, the S&P 500 has earned total returns of just over 300% -- despite facing major downturns like the dot-com bubble burst, the
Great Recession
, the COVID-19 crash, and the bear market throughout 2022.
There are no guarantees that the S&P 500 will continue thriving if we face another recession or market crash, but based on its history of surviving even extreme volatility, its future looks incredibly promising.
Building a million-dollar portfolio
Even a relatively safe investment like the S&P 500 index fund can help you reach $1 million or more. Exactly how much you'll need to contribute per month, though, will depend mostly on your timeline.
The S&P 500 has earned a
compound annual growth rate of around 10%
, historically. This means that over decades, the index's annual returns have averaged out to roughly 10% per year.
While there are no guarantees that it will maintain this performance going forward, the S&P 500 has nearly 100 years' worth of history behind these returns. Even if we face a severe bear market or recession in the coming months or years, holding your investment for a decade or two can significantly reduce your risk.
Let's say, for example, you're investing in an S&P 500 index fund while earning a 10% average annual rate of return. If you have a goal of reaching $1 million, here's approximately what you'd need to invest each month depending on your timeline:
Number of Years
Amount Invested per Month
Total Portfolio Value
20
$1,500
$1.031 million
25
$850
$1.003 million
30
$525
$1.036 million
35
$325
$1.057 million
40
$200
$1.062 million
Data source: author's calculations via investor.gov.
In general, the earlier you begin investing, the easier it will be to build substantial wealth. If you're debating whether to start now or put off buying for a few years, investing now could mean contributing hundreds of dollars less per month to reach your goal.
Investing in an S&P 500 index fund is one of the safest ways to get involved in the stock market, and it comes highly recommended by Buffett. By investing whatever you can afford and then leaving your money alone for as long as possible, you could become a stock market millionaire with next to no effort.
Should you invest $1,000 in S&P 500 Index right now?
Before you buy stock in S&P 500 Index, consider this:
The
Motley Fool Stock Advisor
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Katie Brockman
has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a
disclosure policy
.
