Warren Buffett on S&P 500 Returns and Compound Interest

Buffett shares the remarkable fact that 77 years ago (March 11, 1942), when he bought his first stock (3 shares of Cities Service Preferred for $114.75), a pension fund investing $1 million in the S&P 500 with dividends reinvested would have turned into $5.3 billion - over $5,000 for every dollar invested. The key insight: you didn't need to read headlines, annual reports, or pick individual stocks. You just had to believe in America and hold.

Buffett zooms out to the big picture: there were two other 77-year periods before his investing lifetime, taking us back to George Washington's inauguration when there was virtually nothing here. Now the United States has $108 trillion in household wealth. This success wasn't because Americans worked harder or were smarter - it's because we had a framework that unleashed human potential. Across three 77-year periods, one could simply 'believe in America' and compound wealth.

When asked if S&P index funds are still the best investment vehicle despite their popularity, Buffett emphatically agrees. His reasoning: most people don't know how to pick stocks, and even he admits 'most of the time I don't know how to pick stocks.' Stock picking is not an easy game. By definition, in aggregate everyone gets average returns. But if half the people are paying big fees and jumping around paying commissions, the other half (index fund investors with low costs) have to do better.