Warren Buffett is one of the most talented investors in history. So when he makes a recommendation, it's usually worth listening to.
That's why investors should pay careful attention to his suggestion about the best investment for the vast majority of us. It's an asset he's not only spoken in favor of buying, but also one that his holding company, Berkshire Hathaway, owns.
What is this great investment? Here are the details.
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Here's where Buffett believes your money should go
"In my view, for most people, the best thing to do is own the S&P 500 Index fund," Buffett said in 2020. And the following year, he made it even clearer: "I recommend the S&P 500 index fund, and have for a long, long time to people. And I've never recommended Berkshire to anybody."
Buffett has taken his own advice as well. Berkshire Hathaway owns two such exchange-traded funds (ETFs): the SPDR S&P 500 ETF Trust (SPY 0.01%) and the Vanguard S&P 500 ETF (VOO 0.00%).
Why Buffett's tip is such a good one
Why is an S&P 500 index fund such a great choice for Berkshire and for the vast majority of investors?
That's because it's simple and as close to risk-free as you can get if you're investing over the long haul. The S&P 500 is made up of around 500 large U.S. stocks. When you buy an ETF like SPDR's or Vanguard's version that's designed to track the performance of the index, you pay very low fees since there's no active management involved. And you get to own a very tiny piece of all the 500-plus companies on the list.
Many of these companies are household names, and there's a good mix of them across all different industries. You're essentially buying into big American businesses and betting on the U.S. economy as a whole. In fact, the performance of the S&P is widely considered to be a barometer of how the whole stock market is doing.
Because of the way such an ETF works, you are diversified with a single investment, and you stand a very solid chance of making a good profit over the long term. For decades, the S&P 500 has returned average annual returns of around 10%, and no one who left money in this fund for 20 or more years has ever walked away with losses.
The index has also consistently outperformed the majority of actively managed funds that you would pay a lot more in fees to invest in.
So, why not make your life simple, follow Buffett's advice, and buy an ETF that is almost assuredly going to make you a winner in the market over the long term? You can purchase shares of the Vanguard S&P 500 ETF or the SPDR S&P 500 ETF Trust from pretty much any brokerage firm -- and get your money into the market so it can start working for you.
