Help Safeguard Your Retirement With This Key Warren Buffett Investment Strategy

There's no doubt that investing for retirement is important. After all, purely saving the amount many people would need for retirement is a very tough ask. But investing for retirement shouldn't be hard, and if you're finding it difficult, there's a good chance you're doing more than you may need to do.

If you don't believe me, take it from legendary investor Warren Buffett. There's one simple investment strategy that can help safeguard your retirement: Make consistent investments into an S&P 500 index fund throughout your career.

The only index fund you'll need

The S&P 500 is an index that tracks 500 of the largest public U.S. companies by market capitalization. When people broadly refer to the "stock market's performance," they're generally referencing the S&P 500.

In his latest annual shareholder letter, Buffett referred to the S&P 500 as "an elite collection of large and well-known American companies." Buffett loves the S&P 500 mainly because an investment in it is essentially an investment in the U.S. economy, for all intents and purposes.

Here are three low-cost, exchange-traded funds (ETFs) that track the S&P 500:

Data source: ETF filings.

When you invest in an S&P 500 index fund like the ones above, you cover a lot of ground with one investment. It's instant diversification (although only large-cap companies), and the historical results are there. The S&P 500 has averaged around a 10% annual return over the long run. There's no guarantee that will continue, but there's no reason to believe it won't continue to produce good, long-term returns.

Buffett has often been quoted as saying that consistently buying a low-cost S&P 500 index fund makes the most practical sense for most people investing for retirement (or in general). It's so simple, it can sometimes get overlooked as too simple. But it's proven to work.

You never want to overlook fees

Buffett has always preached not to underestimate just how important fees are. He's been an outspoken opponent of the higher fees often charged by actively managed funds, especially considering that most underperform the S&P 500 in the long run -- no need to pay 0.30% annually for a fund that provides a lower return than an S&P 500 index fund that's a tenth of the price.

Expense ratios are charged as a percentage of your total investment yearly, and although differences may seem negligable on paper, doing so could cost you a lot over time.

For perspective, let's imagine someone invests in the Vanguard S&P 500 and Cathie Wood's Ark Innovation ETF. If they invested $500 in each and both averaged 10% annual returns over 25 years, here's how the values would look after fees:

Data source: Author calculations.

Fees matter a lot, especially over the long term when you're investing for retirement. Even if you invest in a fund in the 0.20% to 0.30% range, it can easily add up to a five-figure difference in fees over your career. That's money that's much more vital to you in retirement.

The key to remaining consistent

A key part of remaining consistent is understanding that good and bad times are inevitable, so you shouldn't let that dictate if you invest. It can affect how much you invest, but you should remain consistent through the good and especially the bad. One strategy to help with this is using dollar-cost averaging.

Dollar-cost averaging involves making set investments at predetermined times, disregarding stock prices. It's similar to how a 401(k) plan works. If you contribute to a 401(k), your investments are made with every paycheck, regardless of stock prices. You can transfer that same strategy to your own retirement investing.

For example, you may decide you have $500 available to invest monthly into an S&P 500 index fund. You could decide to do $125 every Tuesday, $250 with every bi-weekly paycheck, $500 at the start of each month, or whatever works best for you. The frequency doesn't matter as much as just making sure you stick to your schedule no matter what.