Investing in the stock market isn't easy, especially during periods of volatility. The last year has been rough for many investors, and right now can be a daunting time to buy.
However, now could actually be the buying opportunity of the decade. Some stocks are seeing their lowest prices in years, and if you miss this chance, it could be a long time before we see steep discounts like this again.
To take full advantage of this downturn, though, you'll need the right investments. Whether you're brand new to the stock market or are an experienced investor, there's one Warren Buffett-approved ETF that could potentially make you a millionaire: the S&P 500 ETF.
A Buffett-endorsed investment
An S&P 500 ETF is a fund that aims to mirror the performance of the S&P 500 index. It includes the same stocks as the index itself, or roughly 500 stocks from the largest and strongest corporations in the U.S.
When you own an S&P 500 ETF, you'll own a stake in all 500 companies within the index, including household names like Amazon, Apple, and Microsoft.
Through Berkshire Hathaway, Warren Buffett owns two S&P 500 ETFs: the Vanguard S&P 500 ETF (VOO +0.82%) and the SPDR S&P 500 ETF Trust (SPY +0.80%).
NYSEMKT: SPY
Key Data Points
He also highly recommends this type of fund for other investors. "In my view, for most people, the best thing to do is to own the S&P 500 index fund," he said during the 2020 Berkshire Hathaway annual meeting.
In 2008, Buffett also made headlines for betting that an S&P 500 index fund could beat actively managed hedge funds. He won that million-dollar bet, with the S&P 500 earning returns of more than 125% over 10 years, while the five hedge funds averaged returns of just 36%.
How an S&P 500 ETF can protect your money
There are several reasons why this type of investment can be a good option for many people. For one, it can help keep your money safer.
No investment is immune to short-term volatility or market downturns. But the S&P 500 itself has a decades-long history of recovering from even the worst crashes, bear markets, and recessions. No matter what the future holds for the market, it's extremely likely the S&P 500 -- and your S&P 500 ETF -- will recover.
Another advantage of this investment is that it's low maintenance. With just one ETF, you'll own a diversified collection of stocks from a wide variety of industries. You'll never need to worry about researching companies or deciding when to buy or sell. All you have to do is invest as much as you can afford, then let the fund do the rest.
Reaching millionaire status with an S&P 500 ETF
Despite its relative safety, the S&P 500 ETF could help you make a lot of money over time.
Since its inception in 1993, the SPDR S&P 500 ETF Trust has earned an average rate of return of 9.78% per year, which is on track with the S&P 500 index's roughly 10% average annual return, historically.
If you were investing, say, $250 per month while earning a 10% average annual return, here's approximately how much you could earn depending on how many years you continue to invest:
| Number of Years | Total Savings |
|---|---|
| 20 | $172,000 |
| 25 | $295,000 |
| 30 | $493,000 |
| 35 | $813,000 |
| 40 | $1,328,000 |
Source: Author's calculations via Investor.gov.
The more you're able to invest each month, the faster you'll accumulate $1 million. For instance, if you were to invest $500 per month (while still earning a 10% average annual return), you'd reach the million-dollar mark in just over 30 years. Invest $1,000 per month, and it would take roughly 24 years.
Choosing the right investments isn't always easy, but when the market is volatile, it's more important than ever. S&P 500 ETFs can be a smart option for many people, and by investing consistently over the long haul, you could earn more than you might think.
