Legendary investor Warren Buffett rarely makes predictions on market movements. He once quipped that while forecasts tell you nothing about the future, they can tell you "a great deal about the forecaster."
Even so, he made a striking market prediction in September 2017. At a party for the 100th anniversary of Forbes, Buffett predicted that the Dow Jones Industrial Average (^DJI 1.24%) would reach 1 million within 100 years.
At the time, the Dow stood at 22,370, meaning that it would need to rise by 4,179% to hit 1 million.
DJINDICES: ^DJI
Key Data Points
Amid all the wildcards, including "unknown unknowns" like a once-in-a-century pandemic, inflation reaching 40-year highs, and 2022 marking the worst year for stocks since 2008, how could Buffett be so sure?
Buffett's prediction isn't as bold as it seems
For all of the uncertainties ahead, it's worth nothing that the Dow rang in the 20th century at 66.08 and closed at 11,497. This 17,299% rise occurred despite numerous disasters, including two World Wars, the Great Depression, the Cuban Missile Crisis, and the "stagflation" of the 1970s in which unemployment surged while inflation hit nearly 15%.
Speaking of inflation, how did the Dow's return compare to price changes? The Bureau of Labor Statistics began gathering data for its Consumer Price Index (CPI) in 1913. In the following 87 years, CPI rose by 1,582%.The Dow returned 14,490% in that time frame, beating inflation by nearly 10-to-1.
Image source: Getty Images.
Buffett's forecast might seem conservative, then, as it would mark a slowdown from past performance. And since his 2017 prediction, the Dow hasn't slowed at all. Since Buffett made the call, it's now risen to 48,407 as of Monday's market close. That 107% gain amounts to annualized returns of over 9%, compared to the Dow's average annual return of 5.29% in the 20th century.
And if you feel that's too long a wait, there's more good news. Buffett's confident that the Dow will go up over a much shorter time frame, too.
Following up with a reporter, Buffett said he had no idea what the market would do next month or next year. "But 20 years from now, it'll be a lot higher."
How to play Buffett's prophecy
A simple, low-cost way to tap into the market's long-term, inexorable rise is through the Vanguard Total Stock Market ETF (VTI 1.17%). The exchange-traded fund offers broad diversification, providing exposure to both small-, mid-, and large-cap companies (unlike the Dow, which is designed only to track 30 large-cap companies).
Since its inception in November 2000, the fund has achieved average annual gains of 8.88%. That more than justifies its ultra-low expense ratio of 0.04%.
For investors seeking to profit from the market's powerful upward bias in the long term, this fund is a solid choice.
