Warren Buffett Says Buy This 1 Investment and Turn $300 a Month Into $1 Million

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Key Points

• It’s true that Warren Buffett doesn’t practice what he preaches; Berkshire Hathaway holds many, many individual stocks.

• Berkshire also owns a massive number of non-publicly traded businesses that allow Buffett and his lieutenants to be incredibly patient with the conglomerate’s stock holdings.

• If nothing else, investors would not only be wise to play the odds, but do so in a way that is less stressful and less time-consuming.

You probably know Warren Buffett as one of the world’s top stock pickers, which he is. Berkshire Hathaway‘s (NYSE: BRKA) (NYSE: BRKB) long-term market-beating track record proves as much.

Even though he often doles out stock-picking advice, Buffett isn’t actually a fan of the practice for most ordinary investors. Rather, he feels most people would be far better off not picking individual stocks, but instead investing in one far simpler holding that’s likely to end up being far more productive anyway. Indeed, history says committing just $300 a month to his singular suggestion could make you a millionaire in your lifetime.

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That investment? The vast majority of the U.S. stock market itself. That’s the S&P 500 (SNPINDEX: ^GSPC), via an instrument like the SPDR S&P 500 ETF Trust (NYSEMKT: SPY) or the Vanguard S&P 500 ETF (NYSEMKT: VOO).

Image source: The Motley Fool.

The math of the matter is what it is

It’s true! The math works. As the graphic below illustrates, investing just $300 at the beginning of every month in an S&P 500 index fund that maintains its long-term average annual gain of 10% — and then reinvesting any gains and dividends dished out in the meantime — would grow to a little more than $1.1 million after 35 years. (Notice that most of this growth takes shape in just the last third of the timeframe in question, although the size of this late growth ultimately depends on how much has been tucked away up until that point in time.)

Data source: Calculator.net. Chart by author.

There’s an important footnote to add to this hypothetical math. That is, while the index’s average annual gain may be 10%, that’s an average made up a bunch of widely varied inputs. Some years it does better. Other years it does worse. Every few years, it will even lose ground! You’ll need to be prepared to ride out the slow periods and rough patches that aren’t plotted on the chart above.

If you’re as patient as Warren Buffett, given enough time, you’ll not only do well with this single simple index fund, but you’ll likely fare better than the average investor.

Yes, do as he says and not as he does

That being said, Berkshire clearly holds a bunch of hand-picked individual stocks. Why would an investor heed the advice that he doesn’t even adhere to himself?

There’s a great multi-part answer. Chief among these parts is the fact that Berkshire Hathaway also owns a bunch of privately held cash cows like Duracell, Dairy Queen, Pilot Travel Centers, Geico Insurance, and more, which now account for about one-third of Berkshire’s total value. The cash flow these holdings generate has allowed Buffett — and now allows new CEO Greg Abel — to be very patient with the stocks the conglomerate owns.

Then there’s the other thing. Based on decades’ worth of business wisdom and observation of people’s behaviors, Warren Buffett recognizes that most investors tend to eventually gravitate toward high-risk, high-potential investments, which all too often eventually end up undermining a portfolio’s long-term performance. That’s a big reason most hedge funds and even most mutual funds underperform the overall market, in fact.

The irony? Simply sitting on a single, all-around long-term position that doesn’t require constant monitoring allows investors to spend more time and energy on more urgent or important matters.

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James Brumley 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.