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Warren Buffett, the legendary investor and chairman of Berkshire Hathaway, has been a long-standing advocate of safe investment options. The majority of his wealth comes from investments in different industries, while his total equity portfolio is valued at a whopping $347 billion.

Though Buffett’s investment prowess has often been associated with his adept stock-picking skills, his persistent advocacy for index funds sheds light on a simple yet powerful strategy for investors.

The Oracle of Omaha only has 41 stocks in his portfolio, out of which two are S&P 500 Exchange-traded funds (ETFs). He holds nearly 40,000 shares of the SPDR S&P 500 ETF Trust (NYSE:SPY), valued at approximately $18.73 million. He has also maintained a stake in the Vanguard S&P 500 ETF (NYSE:VOO), holding 43,000 shares valued at $18.78 million.

"In my view, for most people, the best thing to do is own the S&P 500 index fund," Buffett had once said. "The trick is not to pick the right company. The trick is to essentially buy all the big companies through the S&P 500 and to do it consistently and to do it in a very, very low-cost way," he further added.

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Why Does Buffett Like Index ETFs So Much?

Buffett’s rationale behind endorsing S&P 500 index funds is rooted in their simplicity and effectiveness. He argues that attempting to outperform the market is futile for most investors, and instead, they should seek exposure to the broad U.S. stock market through low-cost index funds.

"The record shows that the unmanaged index fund is going to do quite well over time and active investment as a group can't beat it," Buffett once said.

Despite the macroeconomic headwinds, Buffett believes the U.S. economy will bounce back over the long run.

"The temptation when you see bad headlines in newspapers is to say, well, maybe I should skip a year or something. Just keep buying," Buffett said during the 2017 annual shareholders meeting. "American business is going to do fine over time, so you know the investment universe is going to do very well."

Buffett’s investment philosophy, characterized by simplicity and discipline, has yielded remarkable results over the years. Despite his exceptional ability to select winning stocks, he emphasizes the value of a diversified investment portfolio, warning against unnecessary risks. His recommendation to consistently invest in low-cost index funds, especially during market volatility, resonates with investors of all levels of experience.

Are Index ETFs Worth It?

ETFs like S&P 500 index funds have gained popularity among investors due to their cost-effectiveness and liquidity. They offer diversification at a fraction of the cost of actively managed funds, making them an attractive option for those seeking steady wealth accumulation.

Despite the allure, Buffett highlighted the importance of keeping the total cost of investment low so as not to eat away at gains. The expense ratio, which denotes the cost of managing the fund, is a crucial factor.

For instance,  SPDR S&P 500 ETF Trust comes with an expense ratio of 0.095%, while Vanguard S&P 500 ETF charges 0.03%. Over the long term, these seemingly small fees can significantly impact investors’ overall returns.

"Costs really matter in investments," Buffett said, "If returns are going to be seven or eight percent and you're paying one percent for fees, that makes an enormous difference in how much money you're going to have in retirement."

Beyond Stocks and Bonds: Preparing for Uncertain Times

There's been a lot of talk about a market downturn in the near future, with many experts warning that the stock market is in for a rough ride. Warren Buffett has even begun taking defensive measures by increasing Berkshire Hathaway's cash position as the economy becomes more unpredictable.

Physical assets, such as real estate, are well-regarded as a strong hedge against recession. Real estate has the ability to provide consistent cash flow, ensuring your portfolio continues to produce returns. One of the most stable types of real estate is single-family rentals. No matter what's happening in the market, people need a place to live and will always prioritize paying rent.

Arrived, an investment platform backed by Amazon.com Inc. founder Jeff Bezos, allows individual investors to own shares of rental properties that pay out monthly cash dividends. Investors can become fractional owners in properties they choose while Arrived handles the management responsibilities.

The platform has already funded more than 370 homes and paid out nearly $6 million in dividends to investors. It takes about 10 minutes to get set up, and the minimum investment is only $100, meaning you could own a cash-flowing rental property today.

Click here to browse properties currently available. 

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• Collecting passive income from real estate just got a whole lot simpler. A new real estate fund backed by Jeff Bezos gives you instant access to a diversified portfolio of rental properties, and you only need $100 to get started.

Warren Buffett | Photo by Fortune Live Media on Flickr

This article Warren Buffett Believes In S&P 500 Index Funds - But Are They Really Worth It? originally appeared on Benzinga.com