Key Points

A low-cost index fund follows all of Buffett's core investment principles.
Low expense ratios accumulate over time and boost overall returns.
Consistent contributions remain essential regardless of current market conditions.

With an estimated net worth near 149 billion dollars Warren Buffett relies on an uncomplicated investment plan. The retired leader of Berkshire Hathaway focuses on spotting undervalued holdings and keeping them over many years. His straightforward method lacks any dramatic elements yet delivers remarkable results.

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Suitable for typical investors

Buffett has often advised Berkshire Hathaway owners that average investors should select a low-cost S and P 500 index fund and retain it long term. Everyday participants gain from a vehicle that follows 500 major American firms and serves as a broad indicator of the national stock market and economy. In Buffett's view this approach amounts to a wager on continued American growth.

One specific option he has endorsed is the Vanguard S and P 500 ETF. The fund delivers all the qualities Buffett values in a solid holding such as:

Diversification: A low-cost index fund offers access to many large successful American businesses. Breadth proves vital because it spreads risk instead of concentrating capital in one firm.
Low fees: Index funds typically carry smaller expense ratios than actively managed alternatives which supports stronger long-term gains. This fund carries an expense ratio of 0.03 percent equaling three dollars per ten thousand invested each year.
Market performance: Over extended periods index funds have surpassed the results of most actively managed funds.

Steady contributions

Buffett encourages investors to keep adding money in good times and bad especially during downturns. When headlines highlight falling markets continue funding the index. He remains confident that American enterprise will prosper over time.

The real key he notes is not selecting individual winners but owning a slice of all major firms via the S and P 500. Numerous strong performers exist within that group.

Buy-and-hold approach

Maintaining an investment through varying conditions becomes simpler when the portfolio stays balanced. It also helps to recognize that losses in a few holdings can be offset by gains elsewhere in the index. Success does not hinge on any single business.

A buy-and-hold plan allows time for compounding to work and lowers trading costs along with tax effects.

Investors lacking time expertise or interest in picking individual stocks can rely on a low-cost fund that simply tracks the S and P 500 index.

Should you purchase shares in the Vanguard S and P 500 ETF today?

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Dana George holds no positions in any mentioned stocks. The Motley Fool maintains positions in and recommends Berkshire Hathaway along with the Vanguard S and P 500 ETF. The Motley Fool maintains a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq Inc.