Warren Buffett, one of the world's best investors, has some advice for people looking to make money in the stock market. His suggestion for the vast majority of investors is a simple one that's all but guaranteed to more than double your money over time.
Here's what it is.
An all-in-one investment tip
Buffett has suggested most investors shouldn't buy individual stocks but instead should put most of their money into a fund that aims to track the performance of the S&P 500. That's a financial index made up of around 500 of the largest companies in the United States.
Most people consider S&P funds to be a good indicator of the market as a whole, so Buffett is suggesting that you put your money into a fund that closely tracks the overall performance of the U.S. stock market.
S&P funds are a great investment choice because they require little effort. Just compare several low-fee S&P ETFs, pick one to put your money into, and leave it alone to grow. You'll be instantly diversified because you'll own a very small piece of 500 companies in a wide variety of industries. And since the companies in the S&P are some of America's largest and most trusted businesses, the risk of loss is minimal.
Why an S&P fund is all but guaranteed to double your money in a decade
Buffett's advice doesn't just make investing easy and help you reduce the risk of losses. It also gives you a really good chance to double your money relatively quickly.
The S&P 500 has historically produced average annual returns of around 10%. This doesn't mean you're going to make 10% every year — sometimes you'll make more, sometimes less. But that's an average over time.
Let's say you invest $1,000 and you don't quite earn that 10%, but you average an annual return of 8%. You'd still end up doubling your money over a decade, with your nest egg worth more than $2,100 by the end of 10 years with no additional contributions on your part.
This return isn't 100% guaranteed since there have been 10-year spans that have underperformed even this average. But an S&P 500 index fund is the closest you can get to a sure thing because of its very long and very consistent track record. And the longer you leave your money alone, the greater the chances that you'll see those 10% historical average returns.
Now, investing in an S&P fund isn't going to let you beat the market — you'd have to invest in individual stocks to do that. But it's going to give you a very realistic chance of doubling your money over a decade while taking a limited amount of risk. That's what makes it such a great Warren Buffett recommendation.
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