Buffett believes the best investment for most people is an S&P 500 index fund, and to prove it, his Berkshire Hathaway owns such funds itself.
Warren Buffett is one of the most talented investors in history. So when he makes a recommendation, it's usually worth listening to.
That's why investors should pay careful attention to his suggestion about the best investment for the vast majority of us. It's an asset he's not only spoken in favor of buying, but also one that his holding company, Berkshire Hathaway, owns.
What is this great investment? Here are the details.
q1Image source: Getty Images.
Here's where Buffett believes your money should go
"In my view, for most people, the best thing to do is own the S&P 500 Index fund," Buffett said in 2020. And the following year, he made it even clearer: "I recommend the S&P 500 index fund, and have for a long, long time to people. And I've never recommended Berkshire to anybody."
Buffett has taken his own advice as well. Berkshire Hathaway owns two such exchange-traded funds (ETFs): the SPDR S&P 500 ETF Trust (SPY -0.70%) and the Vanguard S&P 500 ETF (VOO -0.70%).
Why Buffett's tip is such a good one
Why is an S&P 500 index fund such a great choice for Berkshire and for the vast majority of investors?
That's because it's simple and as close to risk-free as you can get if you're investing over the long haul. The S&P 500 is made up of around 500 large U.S. stocks. When you buy an ETF like SPDR's or Vanguard's version that's designed to track the performance of the index, you pay very low fees since there's no active management involved. And you get to own a very tiny piece of all the 500-plus companies on the list.
Many of these companies are household names, and there's a good mix of them across all different industries. You're essentially buying into big American businesses and betting on the U.S. economy as a whole. In fact, the performance of the S&P is widely considered to be a barometer of how the whole stock market is doing.
Because of the way such an ETF works, you are diversified with a single investment, and you stand a very solid chance of making a good profit over the long term. For decades, the S&P 500 has returned average annual returns of around 10%, and no one who left money in this fund for 20 or more years has ever walked away with losses.
The index has also consistently outperformed the majority of actively managed funds that you would pay a lot more in fees to invest in.
So, why not make your life simple, follow Buffett's advice, and buy an ETF that is almost assuredly going to make you a winner in the market over the long term? You can purchase shares of the Vanguard S&P 500 ETF or the SPDR S&P 500 ETF Trust from pretty much any brokerage firm -- and get your money into the market so it can start working for you.
Christy Bieber has positions in SPDR S&P 500 ETF Trust. The Motley Fool has positions in and recommends Berkshire Hathaway and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
FAQs
Legendary investor Warren Buffett has long recommended the S&P 500 index fund for new and experienced investors alike, and in 2008, he even bet $1 million that this investment could outperform a group of five actively managed hedge funds. Over 10 years, Buffett's S&P 500 index fund earned total returns of roughly 126%.
Which Warren Buffett ETF makes becoming a millionaire investor as simple as can be? ›
Vanguard S&P 500 ETF
You might think it requires complex investment strategies and sophisticated portfolio management. But a single investment recommendation from Warren Buffett may be all you need to become a millionaire.
Which ETF has the most Berkshire Hathaway? ›
540 ETFs Hold Berkshire Hathaway B (BRK.B)
| Symbol | ETF Name | % Weight in ETF |
|---|
| FCQH | Fidelity U.S. High Quality Currency Neutral Index ETF Class L | 64.80% |
| VPCU | Vanilla Blue Chip Portfolio ETP | 25.00% |
| IYG | iShares US Financial Services ETF | 15.23% |
| XLF | Financial Select Sector SPDR Fund | 13.27% |
6 more rowsUnderstanding the Vanguard S&P 500 ETF
VOO appeals to investors because it's well-diversified and made up of equities of large corporations—called large-cap stocks. Large-cap stocks tend to be more stable and have a solid track record of profitability, as opposed to smaller companies.
Is SPDR S&P 500 ETF a good investment? ›
SPDR S&P 500 ETF holds a Zacks ETF Rank of 2 (Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, SPY is an outstanding option for investors seeking exposure to the Style Box - Large Cap Blend segment of the market.
What investment does Warren Buffett recommend? ›
So, why does Buffett only recommend index funds? Because it's the best possible choice, "on an expectancy basis," as he put it. In other words, buying an index fund has a higher expected return than buying any single individual stock or actively managed mutual fund.
What is Warren Buffett way of investing? ›
Warren Buffett's investment strategy has remained relatively consistent over the decades, centered around the principle of value investing. This approach involves finding undervalued companies with strong potential for growth and investing in them for the long term.
What is Warren Buffett's favorite ETF? ›
Warren Buffett's Berkshire Owns 2 ETFs: SPY and VOO
SPDR S&P 500 ETF Trust SPY. Vanguard S&P 500 ETF VOO.
What is Warren Buffett's fund? ›
The Berkshire Hathaway portfolio
| Company | Shares held | Holding value |
|---|
| Jefferies (JEF) | 433,558 | $21,573,846 |
| Vanguard S&P 500 ETF (VOO) | 43,000 | $21,505,590 |
| SPDR S&P 500 Trust ETF (SPY) | 39,400 | $21,442,268 |
| Lennar (LEN) | 152,572 | $21,273,114 |
37 more rowsAug 16, 2024
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.
Top U.S. market-cap index ETFs
| Fund (ticker) | YTD performance | Expense ratio |
|---|
| Vanguard S&P 500 ETF (VOO) | 14.8 percent | 0.03 percent |
| SPDR S&P 500 ETF Trust (SPY) | 14.8 percent | 0.095 percent |
| iShares Core S&P 500 ETF (IVV) | 14.8 percent | 0.03 percent |
| Invesco QQQ Trust (QQQ) | 12.1 percent | 0.20 percent |
VTI is less expensive with a Total Expense Ratio (TER) of 0.03%, versus 0.03% for VOO. VTI is up 15.74% year-to-date (YTD) with +$19.73B in YTD flows. VOO performs better with 16.94% YTD performance, and +$49.90B in YTD flows.
What stocks make up SPY? ›
Top 10 Holdings (34.33% of Total Assets)
- Apple Inc. 6.90%
- Microsoft Corporation 6.70%
- NVIDIA Corporation 6.20%
- Amazon.com, Inc. 3.69%
- Meta Platforms, Inc. 2.24%
- Alphabet Inc. 2.17%
- Alphabet Inc. 1.82%
- Berkshire Hathaway Inc. 1.71%
Whether you're a seasoned investor or just starting, the Vanguard, iShares, and SPDR versions of S&P 500 ETFs are all solid bets for broad market exposure. If you insist on the best, the Vanguard fund provides a Goldilocks combination of the lowest possible fees and mid-range suitability for options trades.
Why is Splg so cheap? ›
SPLG: A Cost-Effective Option
Low 2 bps Expense Ratio: Compared to other S&P 500® ETFs, SPLG boasts a significantly lower 2 bps expense ratio — which may translate to substantial savings over the long-term for cost-conscious investors.
What investment makes the most millionaires? ›
Put your money in proven investments.
Most millionaires have money in the stock market, which has an average historical return of about 10% per year. Real estate is another popular investment of those with $1 million or more.
How to become an investor like Warren Buffett? ›
Take advantage of market downturns
Bear markets and market downturns are inevitable when it comes to investing and Buffett has used them to his advantage through the years. Investors should always be trying to get the most value while paying as little as possible and market downturns often lead to attractive prices.
What do millionaires use to invest in stocks? ›
The Wealthy Use Brokerage Accounts
With a brokerage account, you can buy and sell various investments like stocks, mutual funds, bonds, and more.
What are the Warren Buffett's first 3 rules of investing money? ›
- Rule 1: Never Lose Money.
- Rule 2: Never Forget Rule No. ...
- Rule 3: Pick Businesses, Not Stocks.
- Rule 4: A Wonderful Company at a Fair Price vs. ...
- Rule 5: Our Favorite Holding Period Is Forever.
- Rule 6: Be Willing to Be Different.
- Rule 7: Avoid Credit Card Debt.
- Rule 8: Invest in What You Understand.
