Famous investor Warren Buffett has built a fortune worth over $120 billion through his holding company, Berkshire Hathaway, where he has bought businesses and picked winning stocks for decades.
But you don't need to pick individual stocks to strike it rich in the stock market. Long-term stock-picking can be grueling, where volatility and emotions can test even the most level-headed people.
Instead, consider using Buffett's advice to make 2024 your best financial year yet.
Image source: The Motley Fool.
Buffett's advice: Bet on America
At Berkshire's 2020 annual meeting at the height of the pandemic, Buffett held his ground on his core investment belief. That is, America is an economic miracle and has repeatedly overcome challenges to rise and grow in the long run. He was right. The U.S. economy has grown significantly since a short pandemic-induced recession (see chart below).
For most, it's far easier to hop on and enjoy the ride than to sift through thousands of publicly traded businesses, trying to find the right one at the right price. Buffett has repeatedly championed buying low-cost index funds that track the S&P 500, a basket of 500 of America's largest publicly traded companies. It's the widely recognized stock market benchmark and returns an average of 10% annually over its long history.
Buffett told investors in Berkshire's 2013 shareholder letter that he's instructed the trustee of his wife's inheritance to put 90% of it into S&P 500 index funds and the rest into short-term government bonds.
How to implement it yourself
So, how do you take Buffett's confidence in America and turn it into a wealth-building portfolio? Consider an S&P 500 index fund. The Vanguard S&P 500 ETF (VOO +0.98%) is one of my favorites. Not only is Vanguard a trusted name in the investing world, but the fund charges a minimal management fee, an expense ratio of just 0.03%. That's just $0.30 on every $1,000 invested.
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Key Data Points
The game plan is simple. Invest your money in the index fund a little at a time. Maybe that means monthly purchases. It will depend on factors like how much you're trying to invest or whether you're adding new money to your account. There's no hard rule, but the idea is that you're building an investment slowly and over a long time.
The strategy is called dollar-cost averaging. Your investment won't be made at the tip-top or the lowest low if done right. Instead, it will be somewhere in the middle, giving you a solid floor for your returns as the market grows.
Why it works
It's a great strategy because it saves investors from their emotions. The broader market is near its all-time high, as I write this. The market could continue climbing. For how long? Who knows! It could start plummeting next week just as easily.
Below, you can see that the S&P 500 routinely falls 10% and even 20% or more every few years. Someone buying near highs may panic and sell when the market drops, only to miss out on the inevitable comeback.
Remarkably, if you get in and stay in, the S&P 500 will create staggering wealth for you. You can see below that given enough time, your money can multiply by 50 times, 100 times, even 200 times or more. It doesn't take a genius to do this; only participation and patience.
Actively managing your stock portfolio means picking the right stocks at the right price and avoiding emotional mistakes to succeed. A lot has to go right to make a lot of money. When you bet on America's broader economy like Buffett preaches, you only need to show up and stick around.
