To The Moon

If an economic recession is imminent, this is an ETF that can make your funds safe.

While the future remains uncertain, the likelihood of an impending economic recession is higher. Challenging economic periods are always daunting, but when your investment portfolio is filled with healthy investments, you can rest easy knowing that your money is safe.

What is a recession?

Generally, an economic recession is defined as two consecutive quarters of negative GDP growth.

Recession Is: Definition, Causes, Impact, and How to Deal with it - BFI

However, many people believe that this definition is overly simplistic as it does not take into account factors such as employment, income, sales, and a range of other variables.

The National Bureau of Economic Research (NBER) in the United States uses a broader definition, stating that a recession is a "significant decline in economic activity spread across the economy, lasting more than a few months."

It's important to note that a recession is different from a depression, which is described as a more widespread and severe version of a recession.

Buffett's No. 1 Investment pick

Although everyone has different investment preferences, there is one Exchange-Traded Fund (ETF) that is highly recommended by legendary investor Warren Buffett.

While Buffett's own investment portfolio primarily consists of individual stocks through his holding company $Berkshire Hathaway(BRK.B)$, he does own two ETFs: $Vanguard S&P 500 ETF(VOO)$ and $SPDR S&P 500 ETF Trust(SPY)$.

The S&P 500 ETF tracks the $S&P 500(.SPX)$. It includes approximately 500 stocks from the largest and most powerful U.S. companies, including well-known names like $Apple(AAPL)$ , $Amazon.com(AMZN)$ , and $Microsoft(MSFT)$ . When you invest in the S&P 500 Index ETF, you own shares of all the companies within the index.

Why Warren Buffett recommends Exchange Traded Funds (ETFs)

Warren Buffett has long recommended the S&P 500 ETF to both new and seasoned investors. As early as 2008, he even bet that this investment would outperform a group of hedge funds. He easily won the bet, with his fund gaining nearly 126% return over 10 years, while the average return of the five hedge funds for that year was only 36%.

If you are worried about an economic recession, the S&P 500 ETF is also a good choice. Over the decades, the index itself has weathered numerous recessions, crashes, and bear markets. However, it has a perfect track record of recovering from even the most severe economic downturns.

In just the past two decades, the S&P 500 Index has experienced the bursting of the dot-com bubble, the Great Recession, the COVID-19 crash, and the current economic recession. Despite this, it has still grown over 180% since 2000.

In other words, if you had invested in the S&P 500 Index ETF in 2000 and held onto it until today, your funds would have nearly tripled, even though you experienced the most severe recession in history over the past twenty years.

How much money can you make with the S&P 500 ETF?

Despite being a lower-risk investment, the S&P 500 ETF is still a powerful force. Given enough time, it can help you earn hundreds of thousands of dollars or more.

Historically, the average annual return of the S&P 500 Index itself has been around 10%. While you may not see a consistent 10% return year after year (and during volatile periods, you may not see positive returns at all), over time, the average return of all the highs and lows should average out to around 10% per year.

For example, if you invest $300 per month in the S&P 500 Index ETF while earning an average annual return of 10%, here's approximately how much you could accumulate over time:

The sooner you start investing, the easier it will be to build a portfolio worth hundreds of thousands of dollars (or in some cases, well over $1 million).

Recessions are hard to bear, and if one is coming, there's nothing you can do about it except take steps now to prepare. By investing in the S&P 500 Index ETF, you not only give your investments a great chance to recover from a recession, but you can also make a lot of money over time.