Warren Buffett's Top Investment Tip: How the Vanguard S&P 500 ETF Can Turn $500 Monthly Into $1 Million

Warren Buffett, legendary investor and CEO of Berkshire Hathaway, oversees an extensive portfolio valued at $281 billion. After decades of market outperformance since 1965, Buffett has announced plans to step down at the end of 2025. His investment acumen has produced remarkable results—had you invested $1,000 in Berkshire stock when he took charge, it would be worth $44.7 million by the end of 2024. However, matching Buffett’s expertise is challenging for most individual investors.

Recognizing this, Buffett often recommends a simpler and more accessible strategy: investing in low-cost exchange-traded funds (ETFs) that mirror the broader stock market. A favorite, which he has mentioned by name, is the Vanguard S&P 500 ETF (VOO). It's considered one of the most affordable ways to track the S&P 500 index.

Why the Vanguard S&P 500 ETF Stands Out

The S&P 500 represents 500 of the largest and most established companies in the U.S., each selected based on stringent criteria such as consistent profits and a minimum market capitalization of $20.5 billion. Inclusion in the index is ultimately decided by a specialized committee.

These 500 companies span 11 sectors, though the index is weighted by market capitalization. That means the largest companies, especially in the technology sector, have the greatest impact. For example, Microsoft, Nvidia, and Apple together make up a significant portion of the index, holding a combined value of $10 trillion.

Top Five Sectors in the Vanguard S&P 500 ETF (as of April 2024)

Artificial intelligence (AI) is currently a driving force in the stock market, influencing many sectors in the S&P 500—especially technology. Companies like Nvidia, Microsoft, Amazon, Tesla, Alphabet, Meta Platforms, and Netflix are all leveraging AI to grow their businesses.

However, the main appeal of the S&P 500 index is its diversification. In addition to technology, investors get broad exposure to sectors such as finance, healthcare, industrials, energy, and real estate. This variety helps lower risk and capture growth across the U.S. economy.

The Vanguard S&P 500 ETF is also acclaimed for its low cost. Its expense ratio sits at just 0.03%, which means a $10,000 investment generates an annual fee of only $3. In contrast, the industry average for similar ETFs is 0.75%—25 times higher—which can eat into long-term returns.

The Path: $500 Monthly to $1 Million

Stock market volatility is normal—even the S&P 500 routinely faces drops of 10% or more every couple of years, and deeper bear markets occur roughly every six years (based on data from Capital Group). Despite these fluctuations, the S&P 500 has historically delivered a compound annual return of about 10.3% since 1957, including dividends.

If you invest $500 each month into the Vanguard S&P 500 ETF, here’s what your future portfolio could look like assuming the S&P 500 maintains its historical return rate:

While past performance is not a guarantee of future results, ongoing technological innovations—particularly AI—may propel further growth. Nvidia CEO Jensen Huang projects that AI data center investments could hit $1 trillion annually by 2028, benefiting major semiconductor and tech stocks in the S&P 500. Additionally, AI ventures in fields like autonomous vehicles and robotics could unlock further opportunities.

Even if reaching the $1 million milestone takes slightly longer than 30 years, starting early with regular investments in the S&P 500 could help you significantly build wealth over time.

This content is for informational purposes only and does not constitute financial advice.