When the Oracle of Omaha speaks, investors listen. Warren Buffett has repeatedly offered one top recommendation for most people looking to allocate capital to the stock market, and his advice is surprisingly simple.
Investors who followed his words would have turned a starting amount of $10,000 into more than $40,000 over the past 10 years.
Warren Buffett. Image source: The Motley Fool.
Buffett believes that the best course of action for non-professional investors is to buy a low-cost index fund that tracks the benchmark S&P 500. One particular exchange-traded fund (ETF) is an excellent choice -- the Vanguard S&P 500 ETF (VOO +1.66%), which has generated a total return of 303% in the past decade (as of July 28).
The Vanguard ETF carries a small expense ratio of 0.03%. And it's a convenient vehicle that enables instant exposure to the largest publicly traded businesses in the U.S.
NYSEMKT: VOO
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If there's anyone qualified enough to give average investors guidance, it's Buffett. As CEO of Berkshire Hathaway, he made capital allocation decisions that resulted in shares compounding at nearly 20% per year for several decades. He has one of the best track records ever.
However, even he knows how difficult it is to outperform the benchmark index. Most expert fund managers fail to do this over the long term. And for retail investors who don't possess the skills or have the free time to engage in active stock picking, a passive approach can work wonders.
