Warren Buffett's Investing Advice Could Make You a Stock Market Millionaire

Warren Buffett bought his first stock 80 years ago at age 11, starting a journey that would eventually make him a Wall Street legend. Over the years, Buffett has exercised his considerable business acumen to build Berkshire Hathaway into one of the largest companies in the world, something he accomplished through shrewd investments and discerning acquisitions. Buffett also banked more than $100 billion along the way.

Given his track record, it's not surprising that investors frequently turn to Buffett for advice. They study his shareholder letters, scrutinize his portfolio, and show up to hear him speak at the annual Berkshire meetings. Of course, Buffett has offered up countless pearls of wisdom in his time, but one particularly important piece of advice is often overlooked.

Namely, Buffett has regularly recommended a low-cost S&P 500 index fund as the "most sensible equity investment" for the great majority of investors. Here's why that advice is worth following.

Never bet against the American tailwind

The Vanguard S&P 500 ETF (VOO 1.00%) diversifies capital across hundreds of blue chip American businesses. The index fund comprises value stocks and growth stocks from every market sector, providing exposure to many of the most influential companies in the world.

The top 15 holdings of the Vanguard S&P 500 ETF include:

1. Apple: 7.7%
2. Microsoft: 6.8%
3. Alphabet: 3.6%
4. Amazon: 3.1%
5. Nvidia: 2.8%
6. Tesla: 1.9%
7. Meta Platforms: 1.7%
8. Berkshire Hathaway: 1.6%
9. UnitedHealth Group: 1.2%
10. ExxonMobil: 1.2%
11. Johnson & Johnson: 1.2%
12. JPMorgan Chase: 1.1%
13. Visa: 1%
14. Eli Lilly: 1%
15. Broadcom: 1%

In a sense, buying shares of the Vanguard S&P 500 ETF is tantamount to buying a piece of the American economy, and Warren Buffett sees that as a compelling investment thesis. He wrote in his latest letter to Berkshire shareholders: "I have yet to see a time when it made sense to make a long-term bet against America. And I doubt very much that any reader of this letter will have a different experience in the future."

Why? America is objectively the largest and one of the most prosperous economies in the world, but it may be the most innovative as well. For instance, 16 of the 20 largest businesses on the planet are American businesses. That hints at an extraordinary capacity for innovation, and that quality should keep the American economy (and the S&P 500) growing at a steady pace for many years to come.

Patience is key to becoming a stock market millionaire

Buffett believes the know-nothing investor who periodically buys an S&P 500 index fund can actually outperform most professional money managers, and historical data backs up that assertion. According to S&P Global, more than 93% of large-cap funds underperformed the S&P 500 over the last 15 years. But the secret to making money in the market is patience.

The S&P 500 may rise or fall in any given year, but the odds of a positive return increase as the holding period lengthens. In fact, the S&P 500 has been a profitable investment over every rolling 20-year period since its inception in 1957, and its precursor was a profitable investment over every rolling 20-year period since its inception in 1926.

Building on that, the S&P 500 produced a total return of 1,710% over the last three decades, which is equivalent to 10.12% annually. At that pace, $125 invested weekly in the Vanguard S&P 500 ETF would be worth $104,200 in 10 years, $377,400 in 20 years, and $1.1 million in 30 years.

This chart applies the same rate of return to different weekly contribution amounts:

Chart by author. Note: Dollar totals assume the S&P 500 returns 10.12% annually.

As the chart shows, relatively small sums of money invested regularly in an S&P 500 index fund can compound into a million-dollar (or even a multimillion-dollar) fortune, given enough time. That makes the Vanguard S&P 500 ETF a very compelling investment idea.