Warren Buffett Really Likes 1 ETF. Here's an ETF That's Just as Good and Could Help You Retire as a Millionaire. | The Motley Fool (2024)

Both of these exchange-traded funds are great picks for long-term investors.

Warren Buffett is known as one of the greatest stock pickers of all time. Of course, he'd argue that he's actually a business picker instead of a stock picker. The businesses he picks, though, tend to translate to good stocks.

The legendary investor doesn't just pick individual stocks -- he also likes some exchange-traded funds (ETFs). Buffett really likes one ETF, in particular. But there's an ETF that's just as good and could help you retire as a millionaire.

Buffett's favorite ETF

There are only two ETFs in Berkshire Hathaway's (BRK.A 0.36%) (BRK.B 0.21%) portfolio: the SPDR S&P 500 ETF Trust (SPY -0.59%) and the Vanguard 500 Index Fund ETF (VOO -0.60%). Both are index ETFs that track the S&P 500.

Which of these two funds is Buffett's favorite? I think the evidence points to the Vanguard 500 Index Fund ETF.

For one thing, Berkshire owns a little more of the Vanguard ETF than it does of the SPDR S&P 500 ETF Trust. At the end of the third quarter, the conglomerate's stake in VOO was worth slightly more than $17.5 billion, while its position in SPY was worth under $17.5 million.

Also, Buffett seemed to express his opinion in his 2013 letter to Berkshire Hathaway shareholders. In that letter, he wrote that he had instructed in his will that most of the fortune inherited by his family be invested in a low-cost S&P 500 index fund. He added, "I suggest Vanguard's."

An alternative that's just as good

Why would Buffett prefer the Vanguard fund to another that owned the same stocks? Cost. Vanguard is well known for its low annual expense fees. In that 2013 letter, he emphasized that it's important to "keep your costs minimal."

VOO certainly beats SPY on this front. The Vanguard fund's annual expense ratio is only 0.03%, compared to 0.0945% for the SPDR ETF.

However, when it comes to cost, there's another alternative that's just as good as VOO. BlackRock'siShares Core S&P 500 ETF (IVV -0.58%) also tracks the S&P 500. Its expense ratio is also 0.03%.

There are only two meaningful differentiators between these two ETFs. One is average trading volume. The average volume for VOO is around 4.8 million shares, while the average volume for IVV is slightly under 5 million shares.

The other is assets under management (AUM). VOO's AUM is around $937 billion, compared to IVV's AUM of nearly $397 billion. Neither of these differences should matter to long-term investors, though.

You can retire as a millionaire with either ETF

Buffett told Berkshire Hathaway shareholders roughly a decade ago that any investor who owns a large, diversified basket of stocks via an S&P index fund is "bound to do well" over time. He was right.

It's possible to retire as a millionaire by investing in VOO or IVV. For example, let's assume that you invest $5,350 per year in either ETF for 30 years. If the S&P 500 delivers the same average annual return of 10.7% as it has over the last 30 years, you'd end the period with a little over $1 million.

The low expense ratio for VOO and IVV wouldn't matter materially to your total returns. Taxes could be a factor, though. However, investing in a tax-protected account, such as an IRA or a 401(k), would solve that problem.

Of course, there's no guarantee that the S&P 500 will deliver the same level of returns going forward as it has in the past. Still, investing regularly in VOO or IVV over a long period is likely to pay off nicely.

Keith Speights has positions in Berkshire Hathaway and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Berkshire Hathaway and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

Warren Buffett Really Likes 1 ETF. Here's an ETF That's Just as Good and Could Help You Retire as a Millionaire. | The Motley Fool (2024)


Why is ETF not a good investment? ›

ETFs are subject to market fluctuation and the risks of their underlying investments. ETFs are subject to management fees and other expenses. Unlike mutual funds, ETF shares are bought and sold at market price, which may be higher or lower than their NAV, and are not individually redeemed from the fund.

Should I invest in just one ETF? ›

According to Stockspot founder and CEO Chris Brycki, the "perfect" number of ETFs a person should hold in their portfolio depends on their personal goals. For instance, if your goal was to earn a cash-like return, you could just hold one cash ETF.

What are the best ETFs to invest in 2024? ›

7 Best Large-Cap ETFs to Buy in 2024
Large-Cap ETFExpense ratio
Vanguard Growth ETF (ticker: VUG)0.04%
Invesco QQQ Trust (QQQ)0.20%
Schwab US Large-Cap ETF (SCHX)0.03%
Invesco S&P 500 Top 50 ETF (XLG)0.20%
3 more rows
6 days ago

Can an ETF become worthless? ›

If you diversify across all sectors and countries through an ETF like IWDA, it's very, very unlikely your investment will become worthless. Because it would mean that all major companies in the world have gone bankrupt.

Which ETF has the highest return? ›

100 Highest 5 Year ETF Returns
SymbolName5-Year Return
FNGOMicroSectors FANG+ Index 2X Leveraged ETNs46.41%
TECLDirexion Daily Technology Bull 3X Shares37.75%
SMHVanEck Semiconductor ETF32.61%
ROMProShares Ultra Technology31.41%
93 more rows

Has an ETF ever gone to zero? ›

Leveraged ETF prices tend to decay over time, and triple leverage will tend to decay at a faster rate than 2x leverage. As a result, they can tend toward zero.

Should I put all my money into ETFs? ›

You expose your portfolio to much higher risk with sector ETFs, so you should use them sparingly, but investing 5% to 10% of your total portfolio assets may be appropriate. If you want to be highly conservative, don't use these at all.

Is it better to invest in multiple ETFs or just one? ›

Experts agree that for most personal investors, a portfolio comprising 5 to 10 ETFs is perfect in terms of diversification. But the number of ETFs is not what you should be looking at.

How long should you hold ETFs? ›

Holding an ETF for longer than a year may get you a more favorable capital gains tax rate when you sell your investment.

Which ETF has the best 10-year return? ›

1. VanEck Semiconductor ETF
  • 10-year return: 24.37%
  • Assets under management: $10.9B.
  • Expense ratio: 0.35%
  • As of date: November 30, 2023.

What is the fastest growing ETF? ›

Compare the best growth ETFs
Invesco QQQ Trust (QQQ)0.20%18.60%
Vanguard Growth ETF (VUG)0.04%15.07%
iShares Russell 1000 Growth ETF (IWF)0.19%15.78%
iShares S&P 500 Growth ETF (IVW)0.18%14.34%
3 more rows

Should I invest in ETFs long term? ›

ETFs can be a great investment for long-term investors and those with shorter-term time horizons. They can be especially valuable to beginning investors. That's because they won't require the time, effort, and experience needed to research individual stocks.

Can you become a millionaire from ETF? ›

With enough time and consistency, you can earn well over $1 million with ETFs while still limiting your risk.

What happens if an ETF goes bust? ›

The biggest hassle of an ETF closure is it upends your investment timeline, and there's nothing you can do about it. You're forced to sell or take liquidation proceeds, which can create a tax burden or lock in investment losses.

What happens to my ETF if Vanguard fails? ›

Vanguard is paid by the funds to provide administration and other services. If Vanguard ever did go bankrupt, the funds would not be affected and would simply hire another firm to provide these services.

Can an ETF ever go negative? ›

In other words, you could potentially be liable for more than you invested because you bought the position on leverage. But can a leveraged ETF go negative? No. If you own a leveraged ETF you can't lose more than your initial investment amount.

Is it better to invest in ETFs or stocks? ›

Stock-picking offers an advantage over exchange-traded funds (ETFs) when there is a wide dispersion of returns from the mean. Exchange-traded funds (ETFs) offer advantages over stocks when the return from stocks in the sector has a narrow dispersion around the mean.

Are ETFs worse than mutual funds? ›

The choice comes down to what you value most. If you prefer the flexibility of trading intraday and favor lower expense ratios in most instances, go with ETFs. If you worry about the impact of commissions and spreads, go with mutual funds.


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