Investors often chase the newest and hottest stocks. But any stock decision you make should be backed up by careful research, not the whims of the market. Slow and steady wins the race, even if it’s less exciting.

Investing in an exchange-traded fund (ETF) that tracks a market index offers incredible long-term opportunities for patient investors without the nail-biting of speculating, and with a long and hearty track record. In fact, all it takes is $100 a month invested consistently and over a long period of time for you to come out with some serious gains. Plus, this method is sanctioned by none other than Warren Buffett, widely considered to be the greatest investor of our time. Let’s see how this works and why Buffett recommends it.

Can you beat the market?

It’s a pretty well-known fact that most fund managers underperform the market in any given year. S&P Global‘s most recent data shows that 89.5% of large-cap U.S. fund managers underperformed the S&P 500 (^GSPC -0.56%), and it’s almost always a majority in any given year.

However, Warren Buffett typically beats the market. In 2024, it was by a hairsbreadth; Berkshire Hathaway‘s per-share gain was 25.5%, versus a 25% increase for the S&P 500. Over time, it has been a fantastic difference, with Berkshire’s annualized gain being 19.9%, versus 10.4% for the broader index.

Image source: Getty Images.

Buffett, though, recommends that the average individual investor invest most of their money in index funds. He’s a professional investor and businessman, and he’s paid to sift through mountains of financial statements and spend his time visiting potential investment candidates. The average investor has a different day job and won’t necessarily have the time and the mindspace necessary to find great candidates.

Of the money Buffett’s putting away for his wife for after he dies, 90% of it is going into the S&P 500. He constantly talks about betting on the future of America, and that there’s no better place to invest. Investing in an ETF that tracks the S&P 500 provides exposure to the country’s growth while minimizing risk and having low costs.

You don’t need to beat the market

You may or may not be able to beat the market on your own, but the good news is, you don’t need to. You can benefit from long-term investing in the S&P 500, letting the magic of compounding do its work over many years.

Over the past 20 years, the S&P 500 demonstrated an annualized gain of 10.5%, similar to the figure above. If you start out with an initial investment of $10,000 and add $100 per month to your investment for 30 years, through thick and thin, using 10.5% as a theoretical annualized gain, you’ll end up with nearly $417,000.

Image source: Investor.gov.

This is just one hypothetical scenario, but it’s a realistic possibility considering the S&P 500’s solid track record. If you don’t have $10,000 to invest right away, you’ll end up with less, and if you invest more per month, you’ll end up with more, of course. The longer you invest, the more your money will build into a large nest egg.

There’s no guarantee that the S&P 500 will continue to perform as well as it has in the past, but according to Buffett at least, there’s every reason to be confident in America’s future.

There are different ways to play this

There are several ETFs that track the S&P 500, two of which Berkshire Hathaway owned for a short time and recently sold. The Vanguard S&P 500 ETF (NYSEMKT: VOO) is the largest, with $1.3 trillion in assets, a trusted name, and a low expense ratio. The State Street S&P 500 ETF (NYSEMKT: SPY) is the original S&P 500 ETF, with $600 billion in assets.

You can add other types of index ETFs that can supercharge this strategy. For instance, the Vanguard S&P 500 Growth ETF has about 200 stocks, and it’s demonstrated an annualized gain of 15.4% since its inception 15 years ago.

But if you want low risk, low cost, and an investment you can count on, choosing a Buffett-approved index ETF can be a vital part of a long-term, wealth-generating strategy.