Warren Buffett’s investment wisdom has long served as a guiding light for those in pursuit of enduring wealth creation. In a time of market turbulence, his advocacy for index funds, particularly those mirroring the S&P 500 Index, has garnered heightened attention from investors seeking shelter from the storm of volatility that often besieges individual stocks, even stalwarts like Nvidia (NVDA).
Understanding the S&P 500 Appeal
Buffett frequently extols the virtues of the S&P 500 due to its simplicity and built-in diversification. Despite the dominance of tech behemoths within the index, Berkshire Hathaway (BRK.B) continues to hold a top position, underscoring that traditional sectors maintain significance. A bet on the S&P 500 effectively aligns with a bet on Berkshire, given its substantial footprint in the financial realm, with a valuation of $930 billion.
Delving into sector breakdowns, the tech industry captures a 31% share of the S&P index, spearheaded by giants like Apple (AAPL), Microsoft (MSFT), and Nvidia. Financials and healthcare follow at 13% and 11.9% respectively, with notable names such as Eli Lilly (LLY) in the mix. Consumer discretionary, housing Tesla (TSLA) and Amazon (AMZN), makes up 10%, while communication services, encompassing Alphabet (GOOGL), Meta (META), Disney (DIS), and telecom firms, represent 8.9%.
A Gaze upon Buffett, Berkshire, and the S&P
As the spotlight shifts towards the billionaire investor ahead of Berkshire’s earnings release, all eyes are peeled to discern whether Buffett’s recent trend of stock liquidation to bolster cash reserves persists. Amid the market’s downward spiral, as economic concerns mount, the S&P suffered a blow on Friday, landing precariously atop its 20-week moving average. While external forces steer market sentiment, the technical setup hints at a potential resurgence akin to the April bounce.
For investors aspiring to mirror Warren’s time-honored S&P 500 playbook, several ETFs tracking the index exist, yet only two stand endorsed within Berkshire’s own portfolio.
Breaking Down the Top S&P 500 ETFs
The SPDR S&P 500 ETF Trust (SPY) and the Vanguard S&P 500 ETF (VOO) emerge as premier players in the realm of ETFs, offering a conduit for implementing Buffett’s buy-and-hold philosophy. Let’s delve into their comparative virtues.
SPDR S&P 500 ETF (SPY)
SPY, a pioneering entity in the ETF universe, debuted in 1993 as the first of its kind in the U.S. market, captivating investors seeking wide-reaching exposure to large-cap domestic equities. Designed to shadow the S&P 500 Index, SPY offers a passive investment avenue ideal for those keen on the 500 leading U.S. companies without active management.
Impressively, SPY commands a gigantic $549.6 billion asset base, marking it as one of the behemoths in the ETF domain. This substantial heft translates to remarkable liquidity, with an average trading volume exceeding 51 million shares, ensuring smooth transactions for both long-term holders and short-term traders alike. Coupled with an active options market, SPY furnishes a fertile ground for price speculation and hedging against downturns.
Performance-wise, SPY has surged by 11.87% in 2024, mirroring its benchmark closely. Moreover, bearing fruit in the form of quarterly dividends offering a current yield of 1.26%, SPY’s prowess stands evident.
With its proven track record, deep liquidity, and broad sectoral exposure, SPY emerges as the prime Buffett-endorsed candidate. Nevertheless, boasting an expense ratio of 0.09%, SPY may not offer the most cost-efficient avenue within the S&P 500 ETF spectrum.
Vanguard S&P 500 ETF (VOO)
Welcome the Vanguard S&P 500 ETF (VOO), a formidable contender in the ETF landscape. Unveiled in 2010, VOO swiftly ascended as a favored choice for investors eyeing all-encompassing exposure to U.S. large-cap equities.
Aligned with its counterpart, VOO mirrors the S&P 500 Index’s performance, delivering robust returns evidenced by its 12% surge year-to-date.
Awarding quarterly dividends, the most recent payout of $1.78 per share equates to a 1.33% dividend yield. With assets under management totaling $482.13 billion and an average daily trading volume of about 5.8 million shares, VOO ensures investors seamless buy-and-sell opportunities, albeit with slightly lesser liquidity than SPY. Moreover, offering options and featuring a meager 5,000 contract daily volume, VOO serves as an alternate avenue for capital growth and hedging.
Gravitating towards VOO is its competitively low expense ratio of 0.03%, rendering it one of the most economically viable S&P 500 tracking options. This nominal fee structure empowers long-term investors to preserve a greater share of their returns over time, rendering VOO an appealing choice for cost-conscious individuals.
Concluding Remarks on Buffett’s ETF Selections
Both SPY and VOO stand as excellent alternatives for those seeking to echo Warren Buffett’s investment prowess. While SPY excels in unmatched liquidity and an active options arena, VOO gleams with its ultra-low expense ratio and commendable performance.
In essence, both ETFs furnish extensive and diversified exposure to the U.S. large-cap market, establishing them as robust choices for individuals eyeing a “set it and forget it” investment approach tailored for the long haul.