Warren Buffett, CEO of Berkshire Hathaway, oversees a portfolio of 45 publicly traded stocks and securities worth $315 billion. He also has a $277 billion cash pile and numerous private, wholly owned businesses. Buffett has a remarkable track record.
His investment picks have propelled Berkshire stock to a compound annual return of 19.8% since he took the helm in 1965. This significantly outperforms the 10.2% average annual gain of the S&P 500 index over the same period. Buffett knows that average investors would struggle to replicate his returns by picking individual stocks.
He often recommends they buy ETFs (Exchange Traded Funds) instead. Berkshire has two ETFs in its portfolio: the Vanguard S&P 500 ETF (NYSEMKT: VOO) and the SPDR S&P 500 ETF Trust. Both are designed to track the performance of the S&P 500 by holding the same stocks and maintaining similar weightings.
The Vanguard ETF is cheaper to own, making it a better choice for many investors. If one particular Wall Street analyst is right, the Vanguard S&P 500 ETF could be poised for 163% upside by 2030. The S&P 500 has strict entry criteria.
Companies need to have a market capitalization of at least $18 billion and must be profitable. Admission is at the discretion of a committee, which rebalances the index once every quarter. Investors can rest assured they are buying exposure to the highest quality companies when they put money into the Vanguard S&P 500 ETF.
It has an expense ratio of 0.03%, making it far cheaper to own than the SPDR ETF, which has an expense ratio of 0.09%. The ETF is made up of 11 different sectors. Technology is the largest with a 31.1% weighting, followed by financials at 13.2%, and healthcare at 12.2%.
The tech industry is likely to drive the S&P 500 higher for years because it’s home to the world’s most valuable companies.
Buffett’s ETF growth prediction
The index is weighted by market capitalization.
The top five holdings in the Vanguard S&P 500 ETF have a combined market cap of $12.9 trillion, accounting for just over 25% of the total value of its entire portfolio of 500 companies. Wall Street analysts don’t always get things right, but Fundstrat Global Advisors managing partner Tom Lee has made some very accurate S&P 500 predictions over the last couple of years. Lee’s most recent year-end forecast is for 5,700 on the S&P 500.
Considering it closed at 5,702 on Sept. 20, it looks like he will add that to his list of successful calls. Earlier this year, he also issued a long-term forecast suggesting the index could surpass 15,000 by 2030.
That implies an upside of 163% from here, which is the return investors could expect from the Vanguard S&P 500 ETF if he’s right. Lee says AI will be a key driver behind the move. He estimates the global workforce will be short 80 million workers by the end of this decade.
This will drive more investment into AI technologies to automate many jobs. He also says there is a huge demographic tailwind coming, with millennials and Gen Zers entering the prime period of their lives (between 30 and 50 years of age). That’s when people are earning the most money, and when they are making significant life decisions, like investing.
Of course, there are risks. A global recession could add years to Lee’s 15,000 target. If AI fails to live up to the hype, some of the world’s largest stocks could suffer a prolonged period of underperformance.
With all that said, even if the S&P 500 doesn’t reach 15,000 by 2030, history suggests it’s likely to get there eventually. Investors should definitely consider taking Buffett’s advice and buying the Vanguard S&P 500 ETF. Before making any investment decisions, it’s crucial to consider all potential risks and conduct thorough research.
However, the Vanguard S&P 500 ETF remains a strong option for those looking to diversify their portfolios with high-quality, stable companies.
