Jennifer Saibil, The Motley Fool

Wed, May 28, 2025, 5:23 PM5 min read

• Buffett advises most individual investors to invest in an exchange-traded fund that tracks the S&P 500.

• If you have $10,000 to start out with and $100 to invest monthly, you'll end up with a well-padded nest egg.

• Even if you don't follow that exact formula, investing in an index ETF can be an important part of a wealth-building portfolio.

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Investors often chase the newest and hottest stocks. But any stock decision you make should be backed up by careful research, not the whims of the market. Slow and steady wins the race, even if it's less exciting.

Investing in an exchange-traded fund (ETF) that tracks a market index offers incredible long-term opportunities for patient investors without the nail-biting of speculating, and with a long and hearty track record. In fact, all it takes is $100 a month invested consistently and over a long period of time for you to come out with some serious gains. Plus, this method is sanctioned by none other than Warren Buffett, widely considered to be the greatest investor of our time. Let's see how this works and why Buffett recommends it.

It's a pretty well-known fact that most fund managers underperform the market in any given year. S&P Global's most recent data shows that 89.5% of large-cap U.S. fund managers underperformed the S&P 500 (SNPINDEX: ^GSPC), and it's almost always a majority in any given year.

However, Warren Buffett typically beats the market. In 2024, it was by a hairsbreadth; Berkshire Hathaway's per-share gain was 25.5%, versus a 25% increase for the S&P 500. Over time, it has been a fantastic difference, with Berkshire's annualized gain being 19.9%, versus 10.4% for the broader index.

Buffett, though, recommends that the average individual investor invest most of their money in index funds. He's a professional investor and businessman, and he's paid to sift through mountains of financial statements and spend his time visiting potential investment candidates. The average investor has a different day job and won't necessarily have the time and the mindspace necessary to find great candidates.

Of the money Buffett's putting away for his wife for after he dies, 90% of it is going into the S&P 500. He constantly talks about betting on the future of America, and that there's no better place to invest. Investing in an ETF that tracks the S&P 500 provides exposure to the country's growth while minimizing risk and having low costs.