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.
10 stocks we like better than Walmart
When investing geniuses David and Tom Gardner have an investing tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the ten best stocks for investors to buy right now… and Walmart wasn’t one of them! That’s right — they think these 10 stocks are even better buys.
Stock Advisor returns as of 2/1/20
The Motley Fool has a disclosure policy.