History says this Warren Buffett ETF is a must-buy for almost any investor

Warren Buffett has never shied away from offering investment advice and philosophies to the masses. It has been part of his legacy for the past half century. Of all the gems he has passed down, one piece of advice always remains the same: Most people should only invest in S&P 500 long term to build wealth.

Berkshire Hathaway owns nearly 50 stocks, but the one Buffett always steers investors to is Vanguard S&P 500 ETF (VOO 0.53%). If you’re wondering why, look no further than the following graphic.

Image source: Statista.

A bet on the US economy

The S&P 500, which contains the 500 largest companies on the US stock market, acts as an indicator of the economy. The index and the economy are not directly correlated, but there is a lot of overlap between them because of how much the component businesses contribute to the gross domestic product (GDP) and the overall economy.

You can think of it this way: A growing U.S. economy means higher corporate profits, which translate into higher stock prices as investors gravitate toward higher profits and the chance of future earnings. It can also work in reverse: higher corporate profits (ideally) help the economy by creating more jobs and increasing consumer spending, leading to economic growth.

Of course, this is a very simplified version of how it works, but the more important point is how the growth of the S&P 500 can be related to the growth of the US economy.

It sounds simple, but it’s effective

Up until this point, investing in the S&P 500 and trusting the growth of the US economy has been a strategy that has created wealth for millions. In the graph above, US GDP grew by about 350% from 1990 to 2023, with a compound annual growth rate of about 4.68%. The S&P 500 followed the same upward trajectory, but with greater growth.

^ SPX data by YCharts.

The Vanguard S&P 500 ETF was created in September 2010, so we used the S&P 500 index to show growth from 1990 to 2023. However, for perspective, the ETF has returned nearly 400%, averaging over 12% annual returns.

“Only invest in the S&P 500” seems simple enough, and that’s the problem. It sounds so simple that many people think it is too simple. But that’s the beauty of it. You can’t predict how the market will perform, but you can put your faith in a simple investment strategy that has stood the test of time.