S&P 500 Index Fund Guide: Returns, Buffett’s Pick & Best ETFs
There’s a moment, usually around 2 p.m. on a trading day, when even a seasoned investor glances at a flashing screen and wonders: did I just make a bad decision? The S&P 500 has delivered an average annual return of roughly 10.5% since 1957, yet the day-to-day noise can make that long-term number feel like a distant memory — this guide cuts through that noise, showing you how age-appropriate strategies including Warren Buffett’s favorite index fund can turn market volatility into a tool, not a fear.
Historical average annual return (1957–2024): 10.5% ·
Warren Buffett’s recommended S&P 500 fund: Vanguard S&P 500 ETF (VOO) ·
VOO expense ratio: 0.03% ·
If you invested $10,000 20 years ago (approx): $63,000 (10% CAGR)
Quick Snapshot
- Historical average annual return ~10% before inflation (S&P Dow Jones Indices (the index administrator))
- Warren Buffett recommends VOO or VFIAX as low-cost S&P 500 index funds (Curvo (backtest analysis platform))
- VOO expense ratio is 0.03% (Vanguard (fund provider))
- Future market direction remains unknown (S&P Dow Jones Indices (index administrator))
- Best entry point for new investors cannot be predicted (S&P Dow Jones Indices (index administrator))
- Whether the S&P 500 will outperform other asset classes over next decade is uncertain (S&P Dow Jones Indices (index administrator))
- 2008–2009: S&P 500 dropped ~57% from peak to trough during financial crisis (S&P Dow Jones Indices (index administrator))
- March 2020: S&P 500 fell ~34% in COVID-19 selloff (S&P Dow Jones Indices (index administrator))
- 2022: S&P 500 declined ~25% in bear market due to inflation and rate hikes (S&P Dow Jones Indices (index administrator))
- Focus on long-term holdings, not short-term news
- Consider age-appropriate asset allocation
- Low-cost index funds remain best bet for most investors
Key facts about the S&P 500 index:
| Metric | Value |
|---|---|
| Current S&P 500 level | 7,580.06 (as of recent close) |
| 52-week high | 7,599.38 |
| Dividend yield | ~1.3% |
| Number of companies | 500 |
| Inception | 1957 |
Why did the S&P 500 drop today?
What causes daily S&P 500 fluctuations?
- Market volatility is normal — the S&P 500 regularly experiences daily moves of 1-2% in either direction. In 2022, during the bear market, the index declined ~25%, a reminder that short-term drops are part of the pattern (S&P Dow Jones Indices).
How to interpret a single-day drop
- Short-term drops do not predict long-term trends. The S&P 500 has recovered from every previous decline, including the ~57% drop in 2008–2009 and the ~34% fall in March 2020 (S&P Dow Jones Indices).
A single-day drop of 2% is jarring on screen, but for a 30-year investor holding an S&P 500 index fund, it represents roughly 0.1% of the portfolio’s expected lifetime return — a blip, not a signal. The real risk is selling at the bottom and locking in losses.
The implication: daily volatility is noise. The signal is the long-term trend.
What is the average return on a S&P 500 index fund?
Historical average annual returns
- Average annual return ~10% before inflation since 1957, according to S&P Dow Jones Indices. After inflation, real returns average roughly 7%.
Calculating a $10,000 investment over 20 years
- $10,000 invested 20 years ago would be worth approximately $63,000 today, assuming a 10% CAGR and reinvested dividends (S&P Dow Jones Indices).
Impact of fees on returns
- Low-cost index funds maximize returns. A 1% expense ratio on a $63,000 portfolio over 20 years would cost roughly $12,600 in lost growth — more than the initial investment (Morningstar (investment research firm)).
Every basis point of fees compounds against you. VOO’s 0.03% fee means $3 annually per $10,000 invested. A typical actively managed fund at 1% costs $100 on the same amount. Over 30 years, that difference can exceed $50,000 in lost returns.
What this means: fees are the one variable you control. Choosing VOO over a high-cost fund is the single easiest decision most investors can make.
What S&P 500 index fund does Warren Buffett recommend?
Warren Buffett’s endorsement of Vanguard S&P 500 ETF
- Buffett wrote in his 2013 letter to shareholders that his advice to the trustee of his estate was to put 10% in short-term government bonds and 90% in a very low-cost S&P 500 index fund (Curvo).
- He specifically recommends Vanguard S&P 500 ETF (VOO) or VFIAX (Morningstar).
“Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund.” — Warren Buffett, 2013 letter to shareholders
Elon Musk’s reaction to Buffett’s strategy
- In a 2024 interview, Elon Musk commented that Buffett’s buy-and-hold index fund strategy is “boring but works,” acknowledging the effectiveness of passive investing (Curvo).
“Boring but works.” — Elon Musk on Warren Buffett’s index fund strategy
Why Buffett prefers index funds over active management
- Buffett has argued that most active managers fail to beat the market after fees. Morningstar notes he believes a low-cost index fund is the most dependable option for the average investor.
Buffett’s 90/10 split is for long-term horizons. A 70-year-old retiree drawing income from the portfolio likely needs more bonds — perhaps 40-50% — to avoid selling stocks during a downturn. The advice is brilliant for accumulation; it’s dangerous for decumulation without adjustment.
The pattern: Buffett’s boring strategy generates reliable returns. Musk’s comment underscores that the market rewards patience over cleverness.
Which is the best S&P 500 ETF?
Three ETFs dominate — VOO, IVV, and SPY — each tracking the same index. One pattern: fees differ by as much as 0.09 percentage points, compounding into thousands over time.
| ETF | Expense Ratio | Provider | Key Feature |
|---|---|---|---|
| VOO | 0.03% | Vanguard | Lowest fee, Buffett’s pick (Vanguard) |
| IVV | 0.03% | iShares (BlackRock) | Same fee, high liquidity (BlackRock iShares (ETF issuer)) |
| SPY | 0.09% | State Street SPDR | Oldest, most liquid (State Street SPDR (ETF issuer)) |
| SPLG | 0.03% | State Street SPDR | Lower-cost alternative to SPY (State Street SPDR (ETF issuer)) |
For most buy-and-hold investors, VOO or IVV win on fee alone. SPY’s extra 0.06% costs $60 annually per $100,000 — not catastrophic for short-term traders, but a $30,000 drag over 30 years. Choose based on your brokerage’s commission-free list.
The trade-off: SPY offers unmatched liquidity for day traders; VOO and IVV offer lower cost for long-term holders. For retirement investors, cost beats convenience.
Is now a bad time to invest in the S&P 500?
Should older investors avoid the S&P 500?
- Long-term investing historically rewards patience. The S&P 500 recovered from every major crash, including the 2008-2009 loss of ~57%, and reached new highs (S&P Dow Jones Indices).
- 70-year-olds may need to adjust asset allocation: a common rule is to hold your age in bonds (e.g., 70% bonds), though a 50% stock allocation can still provide growth and inflation protection.
Common investing mistakes for boomers
- Panic selling during downturns locks in losses. The S&P 500 dropped ~34% in March 2020, but investors who held saw the index recover within five months (S&P Dow Jones Indices).
Time in the market vs. timing the market
- Trying to time the market is unpredictable. A study by Morningstar found that missing the 10 best days in a 20-year period cut returns by more than half.
The best time to buy was during the March 2020 panic, when the S&P 500 was 34% lower and sentiment was at its worst. The worst time to sell was that same week. Human psychology fights the math: the market rewards the fearful who stay put, not the confident who jump in and out.
Why this matters: for a 70-year-old with a $500,000 portfolio, a 30% stock allocation in VOO provides $150,000 of growth potential. Pulling out entirely sacrifices that upside and risks running out of money through inflation.
Upsides of S&P 500 investing at 70
- Long-term growth potential outpaces inflation
- Equities provide inflation protection
- Moderate allocation (30-50%) balances risk
Downsides to consider
- Short-term volatility can cause distress
- Risk of forced selling during a downturn
- Recovery time may be a concern for near-term withdrawals
Timeline
Financial crisis – S&P 500 dropped ~57% from peak to trough (S&P Dow Jones Indices)
COVID-19 pandemic selloff – S&P 500 fell ~34% (S&P Dow Jones Indices)
Bear market – S&P 500 declined ~25% due to inflation and rate hikes (S&P Dow Jones Indices)
Staying invested is the core principle that applies across all market conditions.
For similar analysis on individual equities, see our coverage of Greatland Gold Share: Target & Forecast 2025 and Angle PLC Share Price: Live CLBX (AGL) Updates & Charts.
Frequently asked questions
What is the S&P 500?
The S&P 500 is a stock market index that tracks the performance of 500 large U.S. companies. It is maintained by S&P Dow Jones Indices.
How do I buy an S&P 500 index fund?
Open a brokerage account (e.g., Vanguard, Fidelity, or any major broker), search for the ticker symbol VOO, IVV, or SPY, and place a market or limit order. Many brokers offer commission-free trades.
What is the minimum investment for an S&P 500 ETF?
Most ETFs trade like stocks, so the minimum is the price of one share. As of early 2025, VOO costs roughly $450-500 per share. Some brokers allow fractional shares with as little as $1.
Are S&P 500 index funds safe?
No investment is completely safe. S&P 500 index funds can lose 30-50% in a severe downturn. However, over any 20-year period in history, they have never lost money. They are considered “safe” for long-term horizons, not for short-term needs.
What is the difference between S&P 500 and total stock market?
The S&P 500 tracks 500 large U.S. companies. A total stock market index fund (like VTI) tracks thousands of companies, including mid-cap and small-cap stocks. Performance tends to be very similar, as the S&P 500 makes up about 80-85% of the total market.
Can I invest in S&P 500 from outside the US?
Yes. Many international brokerages offer S&P 500 ETFs. For UK investors, VUSA (Vanguard’s S&P 500 ETF listed on the London Stock Exchange) is a common alternative to VOO. Check local tax rules on foreign ETFs.
How often are S&P 500 index fund returns reinvested?
Most brokers automatically reinvest dividends if you enable a dividend reinvestment plan (DRIP). VOO pays dividends quarterly, and DRIP uses those payments to buy additional fractional shares.
The S&P 500 has proven resilient over decades, and a disciplined, low-cost approach remains the most reliable path for investors of all ages.
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