Here's Why S&P 500 Index Funds are Best According to Warren Buffet

Here's Why S&P 500 Index Funds are Best According to Warren Buffet

By Megha

If you are an established investor and have been a part of the business for several years— you would know how swiftly it moves from the winning to the losing end & vice versa. The risks are incredibly high, to be precise. But the good news is that you don’t always have to be a part of the rat race, toiling yourself at the very moment something comes up. Instead, investors should maintain that they are investing persistently for a more extended period. 

And, with this approach, a massive return on your investment is evident— so it’s not rocket science to succeed in the investment market if you approach it correctly. Warren Buffet once said, “Our favorite holding period is forever” — and it makes sense. A long-term investment will always reap huge rewards. 

One such long-term investment option is — S&P 500 Index Funds. It is one of the safest and most significant investments and an ideal choice of famous investor — Warren Buffet. Buffet claimed in a shareholder meeting of Berkshire Hathaway in 2020 that, “In my view, for most people, the best thing to do is to own the S&P 500 index fund.” According to him, such funds are a meaningful option for maximum investors looking to invest their money in the stock market. 


Why Are S&P 500 Index Funds “THE BEST” For Most Investors?


1. You Don’t Require Expertise In Index Funds.

Index funds are an easier way of investing money in the stock market. Among  401(k) plans and other investment options, index funds are the most common type as it does not require any kind of expertise. As of March 31, 2020, the data has shown that the U.S. index funds had a whopping $3.79 trillion assets. Such funds tend to grow over time. To enjoy the benefits, you don’t even need to pick the winning stock on the S&P 500 index.  


2. S&P 500 Index Funds Are Easy To Diversify

These are usually portfolios of multiple funds — which we call diversification. Index funds help in reducing the potential risk related to the investment. Another advantage that comes with diversification is the increase in expected returns. You can understand these funds as a blend of both — the losers & the winners. It would be apt to quote here a statement by Warren Buffet— Buffet in his statement said, “Except for Berkshire, I would not want to put all my money in any one company. You get surprises in this world, and there will be businesses that we think are very good that turn out not to be so good, and there will be other businesses that turn out better than we think.” 


3. No Hefty Fees From Investors

In index funds, a group of investors with similar stock market interests, pool money and purchase the stock of a specific index. This approach of investing reduces a lot of associated costs, including the charges of a fund manager. In an annual meeting, Warren Buffet said, “People will try and sell you other things because there’s more money in it for them if they do.” And, that is the reason Buffet believes that — no-fee S&P 500 index funds are a winning choice. When, as an investor, you are not paying someone to make the investments for you, you are retaining more funds in your portfolio. 


S&P 500 Or  Berkshire Hathaway Funds- What Buffet Has To Say?

Berkshire Hathaway is a holding company based in the U.S. It operates in several sectors, including insurance, utility companies, energy, production, and retail industries. The CEO of the company - Warren Buffet, is a renowned American investor and business tycoon. 

In one of the meetings, Buffet commented on the question of a shareholder about the investment in S&P 500 and Berkshire funds, “I recommended S&P 500 Index Funds, and that’s for a long, long time to people. I never recommended Berkshire to anybody because I don’t want people to buy it because they think I’m tipping them into something. On my death, there's a fund for my then-widow, and 90% will go into an S&P 500 index fund and 10% in treasury bills. I like Berkshire, but I think if a person doesn’t know anything about stocks and doesn’t have any special feeling with Berkshire, then I think they ought to buy S&P 500 index funds.”

Buffet’s statement makes sense vis-a-vis whether investors should invest in Berkshire or S&P 500 index funds. Apart from this, records have shown that S&P 500 has won a battle against Buffett's company - Berkshire. All the investors who had invested $500 in S&P 500 index funds back in 2010 gained colossal profit. By May 2020, the value of such stocks rose to approximately $1,610. This shows a return of 220% in 10 years. At the same time, Buffett’s Berkshire Hathaway stocks have shown a growth of 140%. Indeed, the investment in index funds performed better than the investments in Buffet’s company.


S&P 500 Index Funds: A Resilient Investment

Once Warren Buffet noted, “The S&P 500 can take you further than you may think,” and we agree. By analyzing all of Buffet’s statements on S&P 500 index funds and the market records, we have concluded that S&P 500 funds are a resilient investment option. These funds will bring you extraordinary significant results in the investment market.

S&P 500 is a market index that consists of 500 of the U.S. most significant and stable firms. It is one of the frequently used share indexes. Whenever an investor puts in their money in S&P 500, they are investing in all the stocks reflecting on the index. Including some of the most influential companies of the U.S., such funds are more likely to show a positive return in the long term. Although it is incorrect to say that such funds are not affected by market recessions, they can quickly recover from crashes compared to other kinds of investment.  

Not just a safe investment option, S&P 500 funds also have the potential to outperform in the market. Such funds have shown a notable increase in the past few years which justifies why Warren Buffet is an S&P 500 index funds proponent and the reason for calling S&P 500 index funds “The Best” funds.