There's no sugarcoating it: This has been a difficult year for investors of all types.
Since hitting their respective all-time closing highs, the Dow Jones Industrial Average, S&P 500 (^GSPC +0.77%), and Nasdaq Composite have plunged by as much as 19%, 24%, and 34%. You'll note by the magnitude of these declines that the S&P 500 and Nasdaq have fallen into a bear market.
To boot, the bond market is having one of its worst years on record, and the cryptocurrency market has shed roughly 70% of its value since hitting an all-time high in November. Even the cash in your wallet is under siege from historically high inflation. There simply hasn't been much of a safe-haven investment in 2022.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
Here's why Wall Street and investors pay close attention to Warren Buffett
But don't tell that to billionaire money manager Warren Buffett. Since becoming CEO of conglomerate Berkshire Hathaway (BRK.A 0.04%)(BRK.B 0.32%) in 1965, the Oracle of Omaha has navigated his way through 31 separate double-digit percentage declines in the S&P 500. That hasn't stopped him or his company from vastly outperforming the broader market.
Since taking the reins more than 57 years ago, Buffett has led Berkshire Hathaway's Class A shares (BRK.A) to an annual average gain of 20.1%, through Dec. 31, 2021. That might not sound like a lot, but it equates to a 3,641,613% aggregate return.
To further put this gain into context, Berkshire Hathaway's share price could instantly lose 99% of its value and it would still be handily outperforming the broad-based S&P 500 since 1965. Mind you, the S&P 500 has delivered a completely respectable 30,209% aggregate total return, including dividends, over that time span.
What's more, Berkshire Hathaway's Class A shares have only had 11 negative-returning years out of 57 with Buffett at the helm. In six of those 11 down years, Berkshire's share price decline was less than 5%.
This incredible track record is precisely why Wall Street and investors wait on the edge of their proverbial seats to find out what Warren Buffett has been buying or selling. It's also why investors willingly line up to hear the Oracle of Omaha speak about everything from the U.S. economy to investing philosophy at his company's annual shareholder meeting.
Image source: Getty Images.
The rock-solid investment the Oracle of Omaha believes you should make
Although all of Berkshire Hathaway's annual shareholder gatherings have resulted in nuggets of wisdom being shared, it was what Warren Buffett said during the 2020 shareholder meeting that's truly relevant today.
Keep in mind that when Berkshire Hathaway conducted its virtual shareholder meeting in 2020, the world was working its way through the initial stages of the COVID-19 pandemic, and all three major U.S. stock indexes quickly crashed into bear market territory. Although the velocity of the downward move was greater in 2020 than it's been through the first half of 2022, it doesn't change the fact that the S&P 500 is currently in the grip of a bear market.
While making his case that investors should "bet on America," Buffett had this to say to his virtual audience:
If you bet on America and sustain that position for decades, you're going to do better than, in my view, far better than owning Treasury securities... So find businesses. Get a cross section. And in my view, for most people, the best thing to do is to own the S&P 500 index fund.
Given Buffett's track record of trouncing Wall Street, it may not be the most exciting advice. But buying and holding an S&P 500 index fund, such as the SPDR S&P 500 ETF (SPY +0.74%) or Vanguard S&P 500 ETF (VOO +0.78%) is, indeed, a proven moneymaking strategy.
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Key Data Points
S&P 500 index funds offer long-term investors an impeccable track record
Every year, market analytics company Crestmont Research releases data that examines the 20-year rolling total returns (including dividends) for the S&P 500. The latest report calculated the rolling 20-year total returns for all 103 ending years between 1919 and 2021. For example, the rolling 20-year total return for 1977 would account for years 1958 through 1977.
Here's the truly amazing statistic: All 103 ending years delivered a positive average annual total return. In other words, if you bought an S&P 500 tracking index like the SPDR S&P 500 ETF or Vanguard S&P 500 ETF and held for 20 years, you made money. It doesn't matter whether you bought during a bear market decline or at a peak just before a crash. You made money as long as you held on for 20 years and allowed time to work its magic.
What's more, you probably made a lot of money being patient. The worst 10 ending years produced an average annual total return over the rolling 20-year period of 3.1% to 6.1%. By comparison, there were at least 40 ending years where the average annual total return was at least 10.9%! This type of return can double an investor's money in less than seven years.
S&P 500 tracking indexes are also easy on the wallet. The net expense ratios -- the management and administrative fees collected by exchange-traded funds (ETFs) -- for the SPDR S&P 500 ETF and Vanguard S&P 500 ETF are just 0.09% and 0.03%, respectively. For every $1,000 invested, you'll only owe $0.90 and $0.30 in respective fees. And yes, this does mean the Vanguard S&P 500 ETF is the more fee-friendly of these two S&P 500 tracking indexes.
Warren Buffett's investment advice for John and Jane Q. Investor might be boring -- but boring investments can be quite profitable when given the proper amount of time.
