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  • Got $500 to Invest in Stocks? Put It in This Index Fund.

    Got $500 to Invest in Stocks? Put It in This Index Fund.

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    It doesn’t take much money to get a lot out of investing. Give the stock market enough time, and compounding will take good care of you. But what if you had just $500 to kick-start your investing portfolio?

    An index fund — designed to track a specific market index — would be an excellent choice to start. These funds are buckets of individual stocks lumped together and traded under one ticker symbol.

    The Vanguard S&P 500 ETF (NYSEMKT: VOO) tracks, you guessed it, the S&P 500.

    Here are three reasons investors should put at least their first $500 into this rock-solid index fund.

    1. It’s a Warren Buffett pick

    Warren Buffett is known for his legendary career as a stock picker and CEO of Berkshire Hathaway. Within Berkshire, he has a massive $365 billion stock portfolio with dozens of companies.

    With all his immense investing talent, Buffett keeps just two index funds in his portfolio. Both happen to track the S&P 500, which isn’t a coincidence.

    According to Buffett, owning an S&P 500 index fund is the best thing most investors can do, as he said at Berkshire’s 2020 annual shareholder meeting. One of the two index funds in Berkshire’s portfolio is the Vanguard S&P 500 ETF.

    2. It tracks the world’s best index

    Buffett’s fascination with the S&P 500 is well justified. The index itself represents about 500 of America’s most prominent corporations.

    The U.S. is the world’s largest economy, so getting into the S&P 500 is a badge of honor that puts a company among the world’s best businesses. It’s hard to argue against the wealth our capitalist system has created.

    The market can become volatile as a reflection of how buyers and sellers feel at any given time, but over the long term, the S&P 500 has always bounced back and risen to new highs. That remains true today, with the index now at all-time highs:

    ^SPX Chart

    ^SPX Chart

    The Vanguard S&P 500 ETF hitches your wagon to this financial horse, and for practically nothing in return. All funds charge an expense ratio to compensate those running the fund, but this fund’s expense ratio is just 0.03%, or less than $0.02 on your $500 investment.

    3. It provides instant diversification

    Perhaps the best part of a fund like the Vanguard S&P 500 ETF is its diversification. It’s hard to buy many shares of stock with $500, but buy one share of this fund, and you’re instantly exposed to every company in the S&P 500. That means you own a tiny piece of all the “Magnificent Seven” stocks and hundreds more!

    It might be tempting to buy one stock with $500, but what if something happens to that one company? The S&P 500 has proved to be resilient since its founding, and barring a doomsday economic scenario, it will still be here 10, 20, or 50 years from now.

    And your money will be working for you all that time. You won’t find a better use for $500 than buying a fund like the Vanguard S&P 500 ETF.

    Should you invest $1,000 in Vanguard S&P 500 ETF right now?

    Before you buy stock in Vanguard S&P 500 ETF, consider this:

    The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Vanguard S&P 500 ETF wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

    Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.

    See the 10 stocks

    *Stock Advisor returns as of March 11, 2024

    Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

    Got $500 to Invest in Stocks? Put It in This Index Fund. was originally published by The Motley Fool

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  • Warren Buffett says, after he dies, 90% of his wife’s inheritance will go into this one investment — and it’s not Berkshire Hathaway. Here’s why

    Warren Buffett says, after he dies, 90% of his wife’s inheritance will go into this one investment — and it’s not Berkshire Hathaway. Here’s why

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    Warren Buffett says, after he dies, 90% of his wife’s inheritance will go into this one investment — and it’s not Berkshire Hathaway. Here’s why

    Legendary investor Warren Buffett has generated substantial returns for the shareholders of his company, Berkshire Hathaway. From 1964 to 2022, Berkshire delivered an overall gain of 3,787,464%.

    Given the astonishing track record, one might assume that Buffett would want this successful trajectory to continue through his estate after his passing. However, the Oracle of Omaha has a different plan.

    Don’t miss

    In his 2013 letter to Berkshire shareholders, Buffett shed light on the directives he has included in his will.

    “One bequest provides that cash will be delivered to a trustee for my wife’s benefit,” he wrote. “My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund.”

    Buffett recommended using Vanguard’s S&P 500 index fund.

    While this strategy is straightforward and doesn’t require constant monitoring or active trading, Buffett expressed a significant amount of confidence in it.

    “I believe the trust’s long-term results from this policy will be superior to those attained by most investors — whether pension funds, institutions or individuals — who employ high-fee managers,” he said.

    ‘The best thing to do’

    An S&P 500 index fund is a type of mutual fund or exchange-traded fund (ETF) designed to replicate the performance of the S&P 500 Index, a primary benchmark for the U.S. stock market. The index reflects the stock performance of 500 of the largest companies listed on stock exchanges in the U.S. and is often considered a barometer for the overall economy.

    While Buffett advocates everyday investors make use of index funds, he does not dismiss the value of his own company.

    Read more: Thanks to Jeff Bezos, you can now cash in on prime real estate — without the headache of being a landlord. Here’s how

    During Berkshire’s 2021 annual shareholders meeting, Buffett addressed a question about whether his directive to the trustees of his estate to invest significantly in an index fund represents a lack of confidence in Berkshire’s management.

    “Well, no, because we’re talking about way less than 1% of my estate,” he clarified, noting that approximately 99.7% of his estate will either go to philanthropies or to the federal government.

    “I just think that the best thing to do is buy 90% in S&P 500 index fund,” Buffett emphasized.

    The average person can’t pick stocks

    Buffett’s preference for recommending index funds stems from his belief that stock picking is not an optimal strategy for average investors.

    At the 2021 shareholders meeting, he stated frankly, “I do not think the average person can pick stocks.”

    This is where index funds come into play.

    Investing in an S&P 500 index fund is not complicated: one simply purchases the fund and holds onto it without the need to select individual stocks.

    It’s a passive investment strategy. The fund aims to replicate the index’s performance by holding the same stocks in the same proportions as they appear in the index. Unlike actively managed funds, where fund managers make decisions about how to allocate assets, index funds try to match the index, not outperform it.

    Moreover, by investing in an S&P 500 index fund, investors get exposure to 500 large companies across various industries. This diversification can help reduce risk because the fund’s performance isn’t tied to the success or failure of a single company.

    In 2023, the S&P 500 surged 24% — and it’s up nearly 6% in 2024.

    What to read next

    This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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