Warren Buffett has long championed a simple, low-cost approach to wealth building that outperforms most professional stock pickers. By consistently investing in an S&P 500 index fund, everyday investors can harness the growth of America's largest companies without the stress of picking individual winners.
For decades, Warren Buffett has offered a piece of advice that seems almost too simple for a billionaire: stop trying to beat the market and just buy the whole thing. While Wall Street often promotes complex trading strategies and expensive hedge funds, Buffett has consistently pointed everyday investors toward low-cost S&P 500 index funds. These funds, such as the Vanguard S&P 500 ETF (VOO), allow individuals to own a small piece of the 500 largest and most successful companies in the United States. By investing in the broad market, individuals can benefit from the collective growth of the U.S. economy rather than gambling on the success of a single firm.
Buffett’s belief in this strategy is so strong that he has even laid out a specific plan for his own estate. Known as the 90/10 rule, he has instructed his trustees to put 90% of the cash into a very low-cost S&P 500 index fund and the remaining 10% into short-term government bonds. This approach balances the long-term growth potential of the stock market with the safety of government-backed debt, providing a cushion during periods of market volatility. It is a strategy designed to survive economic downturns while capturing the steady upward trajectory of the market over several decades.
One of the primary reasons Buffett favors index funds is their efficiency. Traditional mutual funds often charge high fees to pay for professional managers who try—and often fail—to outperform the market. In contrast, a fund like the Vanguard S&P 500 ETF has an expense ratio of just 0.03%. This means that for every $10,000 invested, the annual fee is only $3. By keeping costs low, investors ensure that more of their money stays in their accounts to benefit from compound interest over time. Over thirty or forty years, these small savings in fees can add up to tens of thousands of dollars in additional wealth.
The historical performance of the S&P 500 supports Buffett’s confidence. Over the last century, the index has delivered an average annual return of approximately 10%. While the market does experience downturns—sometimes losing significant value in a single year, as seen during the Great Recession—it has historically recovered and reached new highs. According to historical data, a consistent investment of just $100 per month into such a fund could eventually grow into a nest egg of $225,000 over a long-term horizon. This demonstrates that you do not need a massive starting sum to build significant wealth; you only need time and discipline.
For the average investor, this strategy removes the two biggest hurdles to building wealth: high fees and the stress of timing the market. By following Buffett’s lead, individuals can participate in the broad growth of the U.S. economy without needing a degree in finance or hours of daily research. It turns investing from a high-stakes guessing game into a predictable, long-term savings plan that has been proven to work for nearly a century.