When you get some investment advice from Warren Buffett, you may want to heed it. The billionaire CEO of Berkshire Hathaway, one of the richest people in the world, has garnered the nickname “The Oracle of Omaha” due to his legendary investment decisions and prowess in the stock market and beyond.
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Berkshire Hathaway, which is essentially a holding company for his investments, has a competitive advantage with him at the helm as it more than doubled the return of the S&P 500 over an incredible 60-year period, an enviable record that has brought him much acclaim.
Yet, for most investors, Buffett is a huge proponent of low-cost index funds. Why has Buffett repeatedly said this, and how well has the S&P 500 done? Here are some investment tips from the man himself, to hopefully help you grow your net worth.
What Has Buffett Said About Low-Cost S&P 500 Index Funds?
In his long and storied career, Buffett has endorsed low-cost mutual funds numerous times. Here are just a few key principles from his quotes on the matter:
- In 1993, Buffett told his shareholders: “By periodically investing in an index fund, for example, the know-nothing investor can actually outperform most investment professionals. Paradoxically, when ‘dumb’ money acknowledges its limitations, it ceases to be dumb.”
- In 2020, he continued to endorse the S&P 500 at the Berkshire Hathaway annual meeting, telling shareholders, “In my view, for most people, the best thing to do is to own the S&P 500 index fund. People will try and sell you other things because there’s more money in it if they do.”
- In “The Little Book of Common Sense Investing,” by Vanguard founder and former CEO John Bogle, Buffett said, “A low-cost index fund is the most sensible equity investment for the great majority of investors.”
In one of his most direct messages, Buffett outlined his philosophy to Becky Quick on CNBC’s On the Money: “Consistently buy an S&P 500 low-cost index fund. I think it makes the most sense practically all of the time… Keep buying it through thick and thin, and especially through thin.”
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Buffett’s Famous S&P 500 Wager
As befitting such a legendary investor, Buffett put his money where his mouth was in 2007, betting $1 million that the S&P 500 would outperform hedge funds over the following 10 years. Ted Seides, a hedge fund manager at Protégé Partners, accepted the wager and picked five hedge funds he said would outperform the S&P 500 over the next decade.
Unfortunately for Seides, the bet was so lopsided in the favor of Buffett and the S&P 500 that he acknowledged he had lost before the 10 years even elapsed. When all was said and done, the S&P 500 had trounced Seides’ hedge fund selections, with an average annual return of 7.1% vs. 2.1%.
Except for 2008, when the S&P 500 lost nearly 39% of its value, the index outperformed the group of hedge funds in every single year of that decade.
How Much Would You Have If You Invested in the S&P 500?
Over the last 20 years, the S&P 500 has posted an average annual return of 9.75%, right about in line with its long-term average.
Here’s how much you would have now if you invested in the S&P 500 20 years ago, based on varying starting amounts:
- $1,000 would grow to $2,533
- $5,000 would grow to $12,665
- $10,000 would grow to $25,331
- $20,000 would grow to $50,662
- $50,000 would grow to $126,654
- $100,000 would grow to $253,308
Over the past decade, you would have done even better, as the S&P 500 posted an average annual return of a whopping 12.68%.
Here’s how much your account balance would be now if you were invested over the past 10 years:
- $1,000 would grow to $3,300
- $5,000 would grow to $16,498
- $10,000 would grow to $32,997
- $20,000 would grow to $65,993
- $50,000 would grow to $164,983
- $100,000 would grow to $329,965
Final Take To GO: One Final Endorsement
While Buffett is a professional investor, his wife is not. For this reason, as he wrote in Berkshire Hathaway’s 2013 annual letter to shareholders, he has specific advice for the trustee of his estate after he dies.
As Buffett wrote, “My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund.”
Buffett obviously wouldn’t want to squander away the money he leaves to his wife, and that might be his strongest endorsement of the S&P 500 index.
Caitlyn Moorhead contributed to the reporting for this article.
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This article originally appeared on GOBankingRates.com: Warren Buffett: Here’s What You’d Make If You Invested $100 a Week in These Index Funds
