Saving money for retirement isn’t enough. Sure, it’s a stepping stone to success. But to accumulate a respectable amount of money for retirement, you need to do more than just keep building cash. You should plan to invest your money so it’s able to grow over time.
Remember, inflation is apt to erode the value of money over time. So you need to invest your retirement savings in a manner that can outpace it. For the most part, that means putting your money into the stock market.
Now there are several ways you could approach a retirement portfolio. You could load up on individual stocks across a range of market sectors. Or, you could potentially make your life a lot easier by investing your money in ETFs, or exchange-traded funds.
Investing legend Warren Buffett thinks there’s one type of ETF in particular that could lead to long-term success. It’s such an effective investment, in fact, that you may not need to hold many other assets in your retirement portfolio.
Why Buffett says to go all-in on the S&P 500
Although Buffett himself is clearly a stock-picking genius, he feels that everyday investors can do quite well putting their money into an S&P 500 ETF like the Vanguard S&P 500 ETF (VOO). By holding shares of an ETF like VOO, you’re getting the benefit of diversification, since you’re putting your money into the roughly 500 largest publicly traded companies by market capitalization.
One big benefit of VOO and similar ETFs is that you’re getting an easy way to invest without huge fees. And you’re also making your life easier by not having to research a whole bunch of different stocks individually.
The S&P 500 index covers a range of industries, from tech to financials to healthcare to retail. And because it focuses on large companies, it limits your risk profile to some degree.
How to implement Buffett’s advice
You may be able to do perfectly well for yourself following Buffett’s advice and putting the majority of your retirement portfolio into an S&P 500 ETF like VOO. But to really set yourself up for success, you should do these things:
- Start investing for retirement at a young age
- Automate contributions to a retirement account so you stay on track
- Increase your savings rate over time as your earnings rise
- Hold shares of an ETF like VOO through good times and bad
A lot of people make the mistake of pulling out of the stock market when things go south. It’s important to remember that stock market volatility is normal, and that if you stay the course, you’re very likely to see your portfolio recover.
A suggestion worth taking to heart
While Buffett’s advice to go heavy on an S&P 500 ETF is certainly worth considering, one thing you should know is that it won’t help you beat the broad market. If that’s your goal, you’ll need to be prepared to invest in stocks individually.
However, the nice thing about Buffett’s suggestion is that it makes retirement investing simple. And there’s nothing wrong with simple.
There’s also no rule saying you can’t load up on an ETF like VOO but also look at individual stocks on the side. You may find a winner or two to fuel your portfolio’s growth. But if you’re looking for a fairly easy way to build retirement wealth, focusing on an S&P 500 ETF like Buffett recommends is certainly a viable choice.
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