One Vanguard ETF Could Turn $20K Into Millions if You Start Early

Warren Buffett gave investors remarkably simple guidance in Berkshire Hathaway's 2013 shareholder letter, released in 2014: He recommended a very low-cost S&P 500 index fund and specifically suggested Vanguard.

The Vanguard S&P 500 ETF (NYSEMKT) fits that description, offering exposure to the S&P 500 with an expense ratio of just 0.03%. The index has delivered strong returns since Buffett's recommendation became public in 2014, illustrating how a low-cost, long-term approach can allow compounding to build real wealth over time.

Editor's note: This article is for informational purposes only and should not be considered investment advice.

Buffett recommended a low-cost Vanguard S&P 500 index fund

Buffett wrote in his 2013 annual letter that the trustee of his estate should "put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund," adding, "I suggest Vanguard's," the letter itself states. He also wrote that "the goal of the nonprofessional should not be to pick winners" but rather to "own a cross-section of businesses that in aggregate are bound to do well."

Buffett put it in the document governing how his own wealth would be managed after his death. For your portfolio, that level of personal conviction from the most successful investor in history carries weight that goes beyond a standard analyst recommendation.

13.9% annually since 2014 turned $20,000 into $95,348 in 12 years

The S&P 500 has delivered a 13.9% average annual return since Buffett's Vanguard index fund recommendation became public in 2014, turning $20,000 into $95,348 in 12 years, driven by rapid growth in AI, cloud computing, and enterprise software, the Motley Fool confirmed. An investor who placed $20,000 into VOO 12 years ago would hold approximately $95,348 as of mid-2026.

VOO's expense ratio of 0.03% means shareholders pay just $3 annually for every $10,000 invested. The combination of a 13.9% return and near-zero fees is what makes the compounding so powerful, and your ability to replicate this outcome depends entirely on how early you start and how long you hold.

What $20,000 becomes over 20, 30, and 40 years at different return rates

The compounding math changes dramatically depending on the assumed annual return and the holding period. Below are three scenarios using the long-term average of 10.7% and the recent 13.9% rate.

• At 10.7% annually, $20,000 grows to roughly $152,700 in 20 years, $422,100 in 30 years, and $1.17 million in 40 years.
• At 13.9% annually, $20,000 grows to roughly $273,500 in 20 years, $1.03 million in 30 years, and $3.65 million in 40 years.
• The difference between the two rates over 40 years is approximately $2.48 million on the same $20,000 starting amount.

The 13.9% rate reflects a period dominated by megacap technology growth that may not repeat, which is why the 10.7% historical average is the more conservative planning assumption. Even at the lower rate, $20,000 crosses $1 million in 40 years without any additional contributions.

Nearly 90% of active managers failed to beat the S&P 500 over 15 years

S&P Global's SPIVA Scorecard shows that nearly 90% of actively managed large-cap funds have underperformed the S&P 500 over 15-year periods, reinforcing Buffett's argument that most professional stock pickers would be better off owning an index fund, according to S&P Dow Jones Indices research. Over five-year periods, more than 75% of active managers trail the index.

The data means the odds are stacked against anyone who tries to beat VOO through active stock selection. For you as an investor, owning the fund that 90% of professionals cannot outperform simplifies the decision and lets compounding do the work without requiring stock-picking skill.

Starting at 25 versus 35 nearly triples the ending balance on the same contribution

A 25-year-old who invests $20,000 and holds for 40 years until age 65 at 10.7% annually reaches approximately $1.17 million. A 35-year-old who invests the same $20,000 and holds for 30 years reaches approximately $422,100. The extra decade nearly triples the outcome, and that additional time costs nothing beyond patience.

Your starting age determines how many compounding cycles your money experiences, and each additional decade adds exponentially rather than linearly. The gap between $422,100 and $1.17 million on the same $20,000 investment is entirely a function of 10 extra years of holding.

Retirees past the early-start window can still benefit from holding rather than selling

The Motley Fool's analysis addressed investors in their 40s directly, noting that even with a shorter runway, the Vanguard S&P 500 ETF could build a meaningful nest egg through steady contributions and reinvested dividends over 22 to 25 years until retirement.

Retirement does not require liquidation since holding VOO past age 65 and drawing down gradually allows compounding to continue generating returns on the remaining balance. A portfolio that compounds at 10.7% while you withdraw 4% still grows in nominal terms, and your allocation should reflect the fact that retirement may last 25 to 30 years.

Risks of assuming the next 12 years will repeat the last 12

The 13.9% return since 2014 benefited from historically low interest rates, massive fiscal stimulus, and the rise of megacap technology companies. The S&P 500's long-term average of 10.7% reflects a broader range of economic conditions, including recessions, bear markets, and periods of elevated inflation.

You may want to plan around the 10.7% average rather than the 13.9% recent rate. A portfolio built on the higher assumption may fall short, while one built on the lower assumption has room to surprise you to the upside. Conservative assumptions protect retirement plans better than optimistic ones.

Bottom line

In Berkshire Hathaway's 2013 shareholder letter, Buffett disclosed instructions to put 90% of the cash left for his wife's benefit into a very low-cost S&P 500 index fund, specifically suggesting Vanguard. At that rate, the same $20,000 held for 40 years reaches approximately $3.65 million, while the more conservative 10.7% historical average still crosses $1 million.

Setting up automatic contributions through the must-have investing apps on your phone and letting the math compound uninterrupted is the closest most investors would ever come to replicating the approach Buffett described in that letter. The SPIVA data showing 90% of professionals failing to beat the index over 15 years makes the case that simplicity is an advantage.

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