This Warren Buffett recommendation could be your best investment in 2022 | Business

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At the same time, Buffett is a big proponent of broad index funds, like S&P500 index funds, for everyday investors who want to benefit from solid growth without taking undue risks. Index funds are passively managed funds that aim to match the performance of the benchmark indices they track.

Now, index funds are not flawless. When you buy them, you have no say in what investments they are loaded with, nor will they help you generate a return higher than what the general market is offering.

But the advantage of buying broad index funds is that they eliminate investment assumptions. In addition, they allow instant diversification of your portfolio.

When you buy shares of an S&P 500 index fund, for example, you are effectively putting your money into the 500 largest publicly traded companies in the market today. You also set yourself up to benefit when the S&P 500 is doing well.

Now, to be clear, the S&P 500 won’t always do well. It can, over time, have good years and bad years. But between 1957 and 2021, it generated an average annual return of 10.5%. And so if you invest $5,000 in some S&P 500 index fund this year, sit back and do nothing, you’ll end up with about $100,000 in 30 years if your investments offer the same average return of 10.5%.

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