Why Warren Buffett Favors the S&P 500 Index

It’s always about efficiency for traders. In their quest for the world’s most lucrative assets, investors often seek a surefire strategy to accumulate wealth. Is there truly a fail-safe investment that guarantees returns without risks?

Apparently there is. Warren Buffett, renowned for his investment acumen, offers a compelling suggestion – rather than blindly following stock recommendations or spending a fortune on stock-picking advice, consider investing in the S&P 500 index.

Buffett, at Berkshire Hathaway’s virtual annual meeting, emphasised his endorsement of the S&P 500, having recommended it 14 times from 1993 to 2018. He even outlined it in his will – the allocation of 90% of his estate to the S&P 500 and the remaining 10% to U.S. short-term government bonds. That’s a pretty heavy bet, and Buffett is typically known to play it safe. So then, why does Buffett hold such a favorable view of the S&P 500?

Understanding the S&P 500

The S&P 500 is an index fund, and is made up of the top 500 companies by market capitalisation on both the NYSE and NASDAQ. This unique quality sets them apart from other U.S. stock indices. Notable companies charted in the S&P 500 include industry titans like Apple, Microsoft, Amazon, Alphabet, Facebook, Berkshire Hathaway, Boeing, Coca-Cola, Goldman Sachs, IBM, Johnson & Johnson, McDonald’s, Netflix, Nike, Pfizer, Qualcomm, Starbucks, Walmart, Disney, and 3M.

Over the past 50 years, the S&P 500 has experienced downturns, most evidently during the oil crisis in the ’70s, the dot-com bubble and 9/11 in the early 2000s, and the 2008 financial crisis. Despite these challenges, its 10-year average return has remained positive, with a historic annualised average return of around 10.13%.

Mitigating Risks with Long-Term Investment

However, the key lies in long-term investment. While no index can guarantee absolute immunity from losses, the diverse and stable nature of the S&P 500’s constituent companies makes it a safer bet over extended periods. Some other indices, such as the EURO STOXX 50 and the Nikkei 225, have demonstrated negative returns over 20 years.

As an example – an investor who put $1 into the S&P 500 on January 1, 1970, would have seen their investment grow to approximately $182.05 by the end of 2020, including dividends, with an annual compounded return of 10.74%.

Simplifying Investment with S&P 500

Buffett’s advocacy for S&P 500 investment extends beyond financial gain; it’s about keeping things simple. His advice to his wife to invest 90% of their estate in the S&P 500 signifies the importance of freeing up mental bandwidth for other pursuits. And it’s true that active stock picking demands plenty of time and attention. The S&P 500 offers a hands-off approach with consistently favorable yields.

Investing in S&P 500 on 4e

If you’re looking to capitalise on the S&P 500, 4e Exchange is your best bet. The platform is built streamlined for trading indices – with a dedicated index trading section supporting S&P 500, Dow Jones, NASDAQ 100, FTSE 100, DAX, CAC 40, and Nikkei 225. Investors can leverage up to 100x, trade as low as 0.1 lots, and require only around $20 in margin.

Complete with a user-friendly interface and 24/7 customer support, 4e invites everyone to explore the world’s most renowned benchmark indices.

* Original content written by Coinlive. Coinbold is licensed to distribute this content by Coinlive.