Warren Buffett’s value-based investment philosophy has long been a roadmap for investors seeking to recreate his strategy for long-term wealth creation. As markets get volatile this earnings season, Buffett’s well-known advice to invest in index funds, particularly those tracking the S&P 500 Index ($SPX), has gained renewed interest for investors seeking a buffer from the heightened volatility that can hit individual stocks – even big winners, like Nvidia (NVDA).
Exploring the S&P 500 Investment
The S&P 500 is a cornerstone investment often recommended by Buffett for the average investor due to its simplicity and baked-in diversity. Despite the dominance of large-cap tech names in the index, Buffett’s Berkshire Hathaway (BRK.B) remains among the top 10 holdings, offering a glimpse of sector balance. A bet on the S&P 500 is also a bet on Berkshire itself, given its significant presence in the financial sector with a size of $930 billion.
Delving into the S&P sector breakdown, the current composition includes approximately 31% tech, led by industry giants Apple (AAPL), Microsoft (MSFT), and Nvidia. This is followed by financials at 13%, healthcare at 11.9% with Eli Lilly (LLY) leading, consumer discretionary at 10% including Tesla (TSLA) and Amazon (AMZN), and communication services at 8.9% with companies like Alphabet (GOOGL) and Meta (META).
An Overview of Buffett, Berkshire, and the S&P
The spotlight is on Warren Buffett as Berkshire’s upcoming earnings release approaches, with investors eager to see if Buffett’s trend of selling stocks and building his cash reserves persists. Amid macroeconomic concerns leading to a sharp drop in the SPX, technical analysis hints at a potential rebound from the 20-week moving average, echoing past trends.
For investors looking to emulate Buffett’s S&P 500 strategy, two key ETFs featured in Berkshire’s portfolio stand out.
Reviewing the SPDR S&P 500 ETF (SPY)
The SPDR S&P 500 ETF Trust (SPY), a pioneering ETF established in 1993, is a go-to for investors seeking exposure to the U.S. large-cap equity market without active management. Boasting assets of $549.6 billion and high liquidity, SPY tracks the S&P 500 Index efficiently, up 11.87% in 2024 with quarterly dividends and average volume exceeding 51 million shares. Its active options market offers versatility for both long-term investors and traders.
Despite its robust features, SPY’s expense ratio of 0.09% may not offer the best value.
Insights on Vanguard S&P 500 ETF (VOO)
The Vanguard S&P 500 ETF (VOO), introduced in 2010, mirrors the S&P 500 Index with a passive strategy delivering solid returns. With $482.13 billion under management and a low expense ratio of 0.03%, VOO’s cost efficiency appeals to cost-conscious investors. Though slightly less liquid than SPY, VOO’s performance and dividend yield of 1.33% make it an attractive option.
Final Thoughts on Buffett’s ETF Recommendations
Both SPY and VOO offer compelling opportunities for investors aligning with Warren Buffett’s investment approach. The choice between these ETFs hinges on factors like liquidity, expense ratios, and personal preferences. With broad exposure to the U.S. large-cap market, these ETFs cater to diverse investor needs, making them suitable options for long-term, hands-off investing strategies.