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The foolproof investment Warren Buffett wants you to make | The Motley Fool

There is no watering down: this has been a tough year for investors of all types.

Since hitting their respective closing highs, the Dow Jones Industrial Average, S&P500 (^GSPC -2.01%)and Nasdaq Compound fell by 19%, 24% and 34%. You will notice by the magnitude of these declines that the S&P 500 and the Nasdaq fell into a bear market.

To boot, the bond market is having one of its worst years on record, and the cryptocurrency market has lost around 70% of its value since hitting an all-time high in November. Even the money in your wallet is beleaguered by historically high inflation. There just haven’t been many safe-haven investments in 2022.

Warren Buffett at his company's annual meeting of shareholders.

Warren Buffett, CEO of Berkshire Hathaway. Image source: The Motley Fool.

Here’s why Wall Street and investors are paying close attention to Warren Buffett

But don’t tell that to billionaire fund manager Warren Buffett. Since becoming CEO of the conglomerate Berkshire Hathaway (BRK.A -1.32%)(BRK.B -1.63%) in 1965, the Oracle of Omaha fought its way through 31 separate double-digit percentage declines in the S&P 500. That didn’t stop him or his company from vastly outperforming the broader market .

Since taking the reins more than 57 years ago, Buffett has led Class A shares of Berkshire Hathaway (BRK.A) to an average annual gain of 20.1%, through Dec. 31, 2021. That might not seem like a lot, but it equates to an overall return of 3,641,613%.

To better put this gain into context, Berkshire Hathaway’s stock price could instantly lose 99% of its value and it would still easily outperform the broad-based S&P 500 since 1965. Notice that the S&P 500 has delivered a total all quite a respectable 30,209% total return, including dividends, over this period.

Additionally, Berkshire Hathaway’s Class A shares have had only 11 negative returns out of 57 years with Buffett at the helm. In six of those 11 years of decline, Berkshire’s share price decline was less than 5%.

This incredible track record is precisely why Wall Street and investors are waiting on the edge of their proverbial seats to find out what Warren Buffett has been buying or selling. It’s also why investors willingly line up to hear the Oracle of Omaha talk about everything from the US economy to investment philosophy at his company’s annual meeting of shareholders.

Antique pocket watch left open on a pile of hundred dollar bills.

Image source: Getty Images.

The rock-solid investment the Oracle of Omaha thinks you should make

While all of Berkshire Hathaway’s annual shareholder meetings have resulted in nuggets of wisdom being shared, it’s what Warren Buffett said at the 2020 shareholder meeting that’s truly relevant today.

Keep in mind that when Berkshire Hathaway held its virtual shareholder meeting in 2020, the world was going through the early stages of the COVID-19 pandemic, and the three major US stock indices quickly crashed into bearish territory. While the speed of the downward move was greater in 2020 than it was in the first half of 2022, that doesn’t change the fact that the S&P 500 is currently in the throes of a bear market.

While arguing that investors should “bet on America,” Buffett had this to say to his virtual audience:

If you bet on America and hold that position for decades, you’ll do better than, in my opinion, much better than owning Treasuries… So find some companies. Get a cross section. And in my opinion, for most people, the best thing to do is to hold the S&P 500 index fund.

Given Buffett’s track record of winning on Wall Street, that might not be the most exciting piece of advice. But buying and owning an S&P 500 index fund, like the SPDR S&P 500 ETF (TO SPY -2.04%) Where Vanguard S&P 500 ETF (VOO -2.16%) is, indeed, a proven lucrative strategy.

S&P 500 index funds offer long-term investors an impeccable track record

Each year, market analysis firm Crestmont Research releases data that examines the 20-year trailing total returns (including dividends) for the S&P 500. The latest report calculated the 20-year trailing total returns for the 103 years ending between 1919 and 2021. For example, the 20-year rolling total return for 1977 would represent the years 1958 through 1977.

Here’s the truly amazing statistic: the past 103 years have produced a positive average annual total return. In other words, if you bought an S&P 500 tracking index like the SPDR S&P 500 ETF or the Vanguard S&P 500 ETF and held it for 20 years, you made money. It doesn’t matter if you bought during a bear market decline or during a peak just before a crash. You made money as long as you held on for 20 years and let time work its magic.

Plus, you’ve probably made a lot of money by being patient. The 10 worst years ending produced an average annual total return over the rolling 20-year period of 3.1% to 6.1%. By comparison, there have been at least the last 40 years where the average annual total return was at least 10.9%! This type of return can double an investor’s money in less than seven years.

The S&P 500 tracking indices are also easy on the wallet. Net expense ratios – management and administration fees earned by exchange-traded funds (ETFs) – for the SPDR S&P 500 ETF and Vanguard S&P 500 ETF are just 0.09% and 0.03% , respectively. For every $1,000 invested, you will only owe $0.90 and $0.30 in fees respectively. And yes, that means the Vanguard S&P 500 ETF is the friendlier of these two S&P 500 tracking indices.

Warren Buffett’s investment advice for John and Jane Q. Investor can be boring – but boring investments can be very profitable when given the time.


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