Warren Buffett is often referred to as the Oracle of Omaha because he's such a skilled investor that he's made billions of dollars over the course of his life. His advice is definitely worth heeding when it comes to deciding what to do with your own money.
For most people, the investment Buffett suggests is a very easy one to buy -- and it's all but certain to make you a millionaire if you invest just $500 per month. Here's what Buffett suggests.
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This simple investment is recommended by Buffett for most investors
Buffett has recommended that the majority of investors put almost all of their money into an S&P 500 index fund.
Index funds track the performance of specific financial indexes, as their name suggests. In this case, the index that Buffett is recommending is linked to the performance of around 500 large companies across all sectors in the United States.
Because the investments that are part of the index are chosen automatically based on the composition of the S&P 500, there are very low fees associated with this type of index fund. And because it is invested in a vast array of large companies spread across all industries, an S&P fund provides instant, effortless diversification that reduces your investment risk.
Thanks to these characteristics, this investment is very safe, affordable and easy for any investor.
It could make you a millionaire
One of the best things about S&P 500 index funds -- and likely one of the reasons Buffett recommends them -- is that they have a very long track record of providing generous returns with a limited risk of loss over the long term. Over time, the average annual return is around 10%, and no one who has put money in this type of fund and left it alone for at least 20 years has sustained losses, no matter how poorly timed their investments.
Since you can reasonably expect to earn these 10% average returns over time, you can become a millionaire by consistently investing around $500 per month in an S&P 500 index fund over the course of 30 years. This means if you begin investing this much by age 35, you could be ready to retire at 65 with a seven-figure nest egg.
Of course, if you start investing late, you would need to put more into an S&P fund in order for your portfolio balance to grow to the $1 million level. And you are not going to beat the market, so you'll be limiting the potential returns that you can earn if you follow Buffett's advice. But if you aren't good at picking individual stocks or aren't interested in doing so, this investment is a safe bet that stands a very high chance of making you wealthy over time.
It's definitely worth considering, especially if you are starting out in your investing career at a young age and have plenty of time to build wealth slowly and steadily with one of the safest investments out there.
