Billionaire Warren Buffett is one of the most successful investors in history, so when he gives advice, it often pays to listen.
While Buffett's portfolio primarily contains individual stocks, he also invests in exchange-traded funds (ETFs). There's one Buffett-approved ETF I'll be stocking up on before the end of 2022, and it could help you eventually become a stock market millionaire.
A simple way to make money in the stock market
One of the ETFs in Warren Buffett's portfolio is the Vanguard S&P 500 ETF (VOO -0.85%). This fund tracks the S&P 500 index itself, which means it includes the same stocks as the index and aims to mirror its performance.
The S&P 500 includes stocks from 500 of the largest companies in the U.S., including big names like Apple, Amazon, and Microsoft. By owning an S&P 500 ETF, you'll have a stake in all of these companies.
Buffett has long encouraged investors to buy S&P 500 ETFs. "For most people, the best thing to do is to own the S&P 500 index fund," he said in Berkshire Hathaway's 2020 annual meeting.
In 2008, he also famously bet five hedge fund managers that a Vanguard S&P 500 ETF would outperform their actively managed funds over 10 years. He won that million-dollar bet, with the ETF achieving roughly 126% returns while the hedge funds averaged returns of around 36%.
Perhaps the biggest advantage of an S&P 500 ETF, though, is that it's a passive investment. It requires next to no effort on your part, as you never need to choose individual stocks or research companies. All you have to do is contribute a little each month, then sit back and watch your money grow.
Reaching millionaire status with an S&P 500 ETF
While nobody knows how the market will perform over the coming weeks or months, it's almost guaranteed that the S&P 500 will see positive long-term returns.
Despite dozens of corrections, crashes, bear markets, and recessions over the decades, the S&P 500 has still earned positive average returns over time. No matter what the future holds for the market, an S&P 500 ETF is extremely likely to recover.
Historically, the S&P 500 has earned average returns of around 10% per year. In other words, all the annual highs and lows have averaged out to roughly 10% per year over the long term.
If you're earning 10% average annual returns and are investing, say, $200 per month, here's approximately how much you could earn over time:
| Number of Years | Total Savings |
|---|---|
| 10 | $38,000 |
| 20 | $137,000 |
| 30 | $395,000 |
| 40 | $1,062,000 |
Source: Author's calculations via Investor.gov.
The more you're able to invest each month, the more you can potentially earn. If you were to invest $500 per month, all other factors remaining the same, you'd reach $1 million in just over 30 years. Invest $800 per month, and you could be a millionaire within roughly 25 years.
There's a reason why S&P 500 ETFs are highly recommended by Warren Buffett. These investments are safer, require very little effort, and can help you accumulate hundreds of thousands of dollars or more over time. And the sooner you start investing, the more you can earn.
