"In my view, for most people, the best thing to do is owning the S&P 500 index fund," Buffett said at the 2020 Berkshire Hathaway annual meeting. Buffett also said at the 2013 Berkshire annual meeting that nearly all of the investment assets he will leave to his wife will be in an index fund when he dies.
Berkshire actually holds two of them in its portfolio: The Vanguard S&P 500 ETF (VOO 0.13%), and the SPDR S&P 500 ETF Trust (SPY 0.15%).
While your investing choices are personal, there's one option that comes highly recommended by billionaire investor Warren Buffett: The S&P 500 index fund. Here's why it's such a fantastic investment, and how you could earn hundreds of thousands of dollars while barely lifting a finger. Image source: The Motley Fool.
Vanguard S&P 500 ETF
The S&P 500 had a fantastic 2024, roaring into a bull market and going on to deliver a 23% gain. And that's after already climbing in the double digits the previous year.
Buffett knows average investors would struggle to replicate his returns by picking individual stocks, so he often recommends they buy exchange-traded funds (ETFs) instead. And Berkshire has two in its portfolio: the Vanguard S&P 500 ETF (VOO 0.58%), and the SPDR S&P 500 ETF Trust.
SPY is more expensive with a Total Expense Ratio (TER) of 0.0945%, versus 0.03% for VOO. SPY is up 28.31% year-to-date (YTD) with +$7.13B in YTD flows. VOO performs better with 28.36% YTD performance, and +$103.99B in YTD flows.
Warren Buffett has long recommended a low-fee S&P 500 tracker fund to amateur investors. Chamath Palihapitiya says it's become riskier as a few stocks now have an outsize pull on the index. Buffett mostly steers clear of tech names, but Apple has been his No. 1 stock for years.
Average Return
In the past year, QQQ returned a total of 24.57%, which is slightly higher than VOO's 23.44% return. Over the past 10 years, QQQ has had annualized average returns of 18.38% , compared to 13.11% for VOO. These numbers are adjusted for stock splits and include dividends.
Trust a Low-Cost Index Fund for Your Portfolio
For instance, Buffett urges the average investor to purchase index funds. “Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund,” he wrote in his 2013 letter to Berkshire Hathaway shareholders.
There are 214 ETFs which contain Berkshire Hathaway, Inc.. All of these ETFs are listed in the table below. The ETF with the largest weighting of Berkshire Hathaway, Inc. is the SPDR S&P US Financials Select Sector UCITS ETF.
Buffett recommends putting 90% in an S&P 500 index fund. He specifically identifies Vanguard's S&P 500 index fund. Vanguard offers both a mutual fund (VFIAX) and ETF (VOO) version of this fund. He recommends the other 10% of the portfolio go to a low cost index fund that invests in U.S. short term government bonds.
For example, you might buy SPY if you want to trade actively, or even venture into day trading, because of its high volume. You might consider buying VOO to hold over the long term because of its lower expenses.
For most investors, it probably doesn't make sense to own both. VTI and VOO both provide great diversification at a low cost. If you hold both in your portfolio, you'll have a lot of overlap between the two. However, you may find that your retirement plan at work doesn't offer a total stock market index fund like VTI.
choosing between QQQ and SPY boils down to your investment goals, risk tolerance and portfolio strategy. If you're looking for an ETF that offers exposure to high growth companies, with a focus on technology and internet-related stocks, then the QQQ that tracks the NASDAQ-100 may be a better option for you.
And Buffett knows it, too, as SPDR S&P 500 ETF Trust is one of Berkshire Hathaway's own holdings. "Buffett was a believer in investing in S&P 500 funds for their simplicity and low costs," said Todd Rosenbluth, head of research at TMX VettaFi.
As Buffett says: Generally speaking, investing in yourself is the best thing you can do. Anything that improves your own talents; nobody can tax it or take it away from you. They can run up huge deficits and the dollar can become worth far less.
Warren Buffett's Berkshire Owns 2 ETFs: SPY and VOO
SPDR S&P 500 ETF Trust SPY. Vanguard S&P 500 ETF VOO.
VOO has a consensus rating of Moderate Buy which is based on 400 buy ratings, 99 hold ratings and 5 sell ratings. What is VOO's price target? The average price target for VOO is $621.22. This is based on 504 Wall Streets Analysts 12-month price targets, issued in the past 3 months.
The Global Aggressive ETF Strategy seeks risk-adjusted long-term growth for an aggressive risk tolerance by employing a top-down style to construct a global tactical asset allocation portfolio with flexible guardrails.