Published - May 15th, 2023 @ 11:15 PM (GMT+2 )

This investment strategy, frequently backed by Warren Buffett, is a sure bet. The preceding 16 months have been challenging for investors. Anticipation of a recession led to the S&P 500's fall into a bear market at the start of 2022, and the general index is currently 14% from its high. This equates to a staggering $6 trillion wiped off by economic uncertainties. However, the S&P 500 is now within reach of the bull market zone.
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A bull market is conventionally defined as a 20% recovery from its lowest point, and the S&P 500 has currently rallied 16% from its lowest in the previous October. This development should excite investors. Historically since 1957, the average S&P 500 bull market has lasted 1,960 days, yielding an average return of 184%, as per Yardeni's data.

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Investors can exploit this information by buying into an S&P 500 index fund.

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Warren Buffett often endorses an S&P 500 index fund.
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Being one of the most triumphant investors, he has become a guiding light in the finance industry. Investors scrutinize his every utterance and examine Berkshire Hathaway's Form 13F filings with the U.S. Securities and Exchange Commission for stock insights.

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Buffett consistently suggests that an S&P 500 index fund is optimal for most investors to access the stock market. Buffett holds two S&P 500 index funds through Berkshire Hathaway: the Vanguard S&P 500 ETF (VOO -0.14%) and SPDR S&P 500 ETF Trust.

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While they are practically equivalent, I prefer the Vanguard ETF because it's more affordable. It has an expense ratio of 0.03%, meaning investors would only spend $30 on annual fees for a $100,000 portfolio. The SPDR S&P 500 ETF Trust carries a slightly larger expense ratio of 0.0945%.

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However, the investment rationale remains simple: The S&P 500 tracks the performance of 500 substantial U.S. firms. Its members cross all 11 market sectors, encompassing a mix of value and growth stocks.

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This makes the index a standard for the wider U.S. economy, the world's largest. In the words of Buffett: "For 240 years, it's been a terrible mistake to bet against America, and now is no time to start. America's golden goose of commerce and innovation will continue to lay more and larger eggs."

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Historically, the S&P 500 has been a reliable investment.
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Since its inception in 1957, the S&P 500 has generated a positive return for every rolling 20-year period, and there's no reason to anticipate a different outcome in the future. This implies that any investor who purchases an S&P 500 index fund today is virtually assured of profits as long as they stay invested for at least 20 years.

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Buffett opines: "I have yet to see a time when it made sense to make a long-term bet against America. And I doubt that any reader of this letter will have a different experience in the future."
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Index funds can transform patient investors into stock market millionaires.
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Despite several bear markets and recessions in the past two decades, the S&P 500 has managed a total return of 556% (or 9.9% annually). Although this might seem modest, compounding can turn such annualized returns into substantial portfolio values over a long period. Investors who consistently contribute to an S&P 500 index fund can anticipate similar returns.

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At a rate of 9.9% annually, an investment of $125 weekly in an S&P 500 index fund would grow to $103,000 in a decade, $368,000 in two decades, and reach $1 million in three decades. Alternatively, as my associate Courtney Carlsen explained, investing $500 monthly in the SPDR S&P 500 ETF over the last 20 years would have amassed $375,000 today.
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Here's the takeaway: Investors who persistently contribute to an S&P 500 index fund, investing consistently regardless of market conditions, will almost assuredly be significantly wealthier a decade (or three) from now. Additionally, as the S&P 500 index approaches bull market territory, it's an opportune moment to commence (or continue) purchasing an S&P 500 index fund.

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The information on mexem.com is for general informational purposes only. It should not be regarded as investment advice. Investing in stocks involves risk. A stock's past performance is not a reliable indicator of its future performance. Always consult a financial advisor or trusted sources before making any investment decisions.

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