Warren Buffett owns 2 ETFs—this one is better for everyday investors, experts say (2024)
When you've been as successful an investor as Warren Buffett, you make headlines any time you buy an asset. As noted by CNBC's "Buffett Watch," the Berkshire Hathaway chairman recently upped his stakes in Liberty SiriusXM and Occidental Petroleum.
If you really want to be like Buffett, you can scroll down on that page to get a full portrait of Berkshire's portfolio of public investments. The list is full of stocks, with the notable exception of two exchange-traded funds: SPDR S&P 500 ETF Trust (symbol: SPY) and Vanguard S&P 500 ETF (VOO).
These low-cost funds track the performance of the broad U.S. stock market via the S&P 500, and although they make up a miniscule portion of Buffett's portfolio, he's said over and over that similar investments should make up the majority of yours.
"In my view, for most people, the best thing to do is own the S&P 500 index fund," Buffett said at Berkshire's 2020 annual meeting.
Buffett's thinking here is straightforward. Most non-professional investors (and even many professional stock-pickers) have very little chance of outperforming the market. But index fund investors get exposure to the entire U.S. market and can benefit from its historical upward trajectory — and for cheap.
"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,"Buffett toldCNBC in 2017.
Berkshire owns shares in two prominent S&P 500 funds, but they're far from the only ones on the market. Each one you come across will give you roughly the same exposure and roughly the same returns. The major differentiator is cost.
Take the two funds in Buffett's portfolio. SPY comes with an expense ratio of 0.095%, while VOO charges 0.03%. That may not seem like much, but over the course of your life as an investor, it can make a difference.
Say you invested $10,000 in VOO and earned a 7% annualized return over the course of 45 years. At the end of the term, you'd have $207,208, having paid $908 in fees, according to Bankrate's mutual fund fees calculator. The same investment and return in SPY would cut your total to about $200,000 with fees nearing $3,000.
Why would anyone pay more for the same product? In the case of SPY, it comes down to being able to get a good price on options trades, says Todd Rosenbluth, head of investment research at VettaFI.
"SPY is the more appealing option for short-term trading purposes where the spreads are super tight," he says.
But if you're a long-term investor, you generally want to aim to keep things as cheap as possible. VOO and other ultra low-cost funds are "more appropriate products for people holding for intermediate or long time horizons," Rosenbluth says. "The lower expense ratio will result in savings and more money going into the equity market."
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If you don't, then dollar-cost average into index funds.” Buffett has long advised most investors to use index funds to invest in the market, rather than trying to pick individual stocks. By picking individual stocks you're working against the pros who have extensive intelligence on companies.
Warren Buffett has long recommended the S&P 500 index fund and ETF, and through his holding company Berkshire Hathaway, he also owns two of these types of investments: the Vanguard S&P 500 ETF (NYSEMKT: VOO) and the SPDR S&P 500 ETF Trust (NYSEMKT: SPY).
For this article we scanned Warren Buffett's Q4'2023 portfolio and chose his top 12 stock picks. These were the stocks Buffett had in his portfolio heading into 2024. Some top picks of Berkshire are Apple Inc.(NASDAQ:AAPL), Coca-Cola Co (NYSE:KO) and Chevron Corp (NYSE:CVX).
ETFs are convenient and effective, to say the least. If you're interested in investing in an ETF and have $1,000 that you can spare to invest -- meaning you already have an emergency fund saved and have paid down any high-interest debt -- the Vanguard S&P 500 ETF (VOO 0.16%) is a great option.
A 70/30 portfolio is an investment portfolio where 70% of investment capital is allocated to stocks and 30% to fixed-income securities, primarily bonds.
Buffett is seen by some as the best stock-picker in history and his investment philosophies have influenced countless other investors. One of his most famous sayings is "Rule No. 1: Never lose money.
Introduction: My name is Merrill Bechtelar CPA, I am a clean, agreeable, glorious, magnificent, witty, enchanting, comfortable person who loves writing and wants to share my knowledge and understanding with you.
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