Warren Buffett is known for his successful investing strategies. He is the CEO of Berkshire Hathaway, a company with a $295 billion stock portfolio. Buffett’s investment decisions have helped Berkshire Hathaway’s stock earn a compound annual return of 19.8% since 1965.
This is much higher than the S&P 500’s average annual return of 10.2% over the same period. Buffett knows that most investors can’t match his success. That’s why he often suggests investing in exchange-traded index funds (ETFs).
Berkshire Hathaway owns stakes in two ETFs that track the S&P 500 index. These are the Vanguard S&P 500 ETF and the SPDR S&P 500 ETF Trust. The Vanguard S&P 500 ETF is known for its low cost.
It has an expense ratio of just 0.03%, making it one of the cheapest ETFs in the world. The ETF tracks the performance of the S&P 500 by holding the same stocks and keeping similar weightings. The S&P 500 index includes 500 of the largest U.S. companies across 11 sectors.
To be part of the index, companies must have a market value of at least $18 billion. They also need to be profitable over the past 12 months.
Buffett’s advice on S&P 500 investing
Technology companies have a big influence on the S&P 500. They make up 31.7% of the index. This is due to tech giants like Nvidia, Apple, and Microsoft.
These three companies alone have a combined market value of about $10.1 trillion. They are also leaders in the development of artificial intelligence (AI). However, the S&P 500 is not just focused on tech.
It has holdings in many other sectors too. Some examples are Berkshire Hathaway, electric car maker Tesla, drug company Johnson & Johnson, investment bank JPMorgan Chase, and retailer Costco Wholesale. Tom Lee, an analyst at Fundstrat Global Advisors, has a positive outlook for the S&P 500.
He predicts it could reach 15,000 by 2030. Lee thinks this growth will be driven by demographic changes as younger generations enter their peak earning years. He also believes AI will boost productivity.
While Lee’s prediction is not guaranteed, history suggests the S&P 500 will likely reach this level at some point. This supports the idea of following Buffett’s advice. Investors should consider the Vanguard S&P 500 ETF as a good long-term investment.
