Warren Buffett — the most successful investor in history — has a simple message for ordinary investors: buy a low-cost S&P 500 index fund and hold it forever. Coming from a man who built a $100+ billion fortune through stock picking, this advice carries remarkable weight.
What Buffett Has Said
In his 2013 letter to Berkshire Hathaway shareholders, Buffett revealed that his will instructs the trustee to invest 90% of his wife's inheritance in a "very low-cost S&P 500 index fund" and 10% in short-term government bonds. He specifically mentioned Vanguard's index funds as the vehicle of choice.
Buffett has repeated this advice consistently. At the 2016 shareholder meeting, he said: "Consistently buy an S&P 500 low-cost index fund. I think it's the thing that makes the most sense practically all of the time." The ETF equivalent of his recommendation is VOO (Vanguard S&P 500 ETF) at 0.03% expense ratio.
The Million-Dollar Bet
In 2007, Buffett wagered $1 million that an S&P 500 index fund would outperform a collection of hedge funds selected by Ted Seides of Protege Partners over a 10-year period. The result was not close. The index fund returned 125.8% cumulative while the hedge fund basket returned just 36%.
What the Bet Proved
The hedge funds were not bad at picking stocks — they were undermined by their fees. The typical hedge fund charges 2% annually plus 20% of profits. These fees consumed most of the value their managers created. Buffett's point: for most investors, fees are the enemy, and low-cost index funds are the solution.
Why Buffett Picks Stocks but Tells You Not To
Buffett compares investing to professional sports. The existence of LeBron James does not mean you should try to play in the NBA. Similarly, the existence of Warren Buffett does not mean ordinary investors should pick stocks. The skills, temperament, time, and information advantages required to consistently beat the market are rare and cannot be taught from a book.
Applying Buffett's Wisdom
The practical application is straightforward: buy a low-cost S&P 500 ETF regularly, ignore market noise, and hold through every crash and correction. If you want broader diversification, add a total international ETF. Buffett's approach is not exciting, which is exactly the point — wealth building should be boring.
The Buffett Portfolio
Based on his stated advice: 90% VOO (S&P 500) and 10% SHV or BIL (short-term Treasury). That is a complete portfolio from the world's greatest investor. It is deliberately simple because simplicity works. Explore why this approach succeeds in our education center.
