With Just 3 Words, Warren Buffett Gives a Clear Endorsement of This Vanguard ETF

In a 2013 Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB) shareholder letter, Warren Buffett mentioned wherever helium wanted his wife's inheritance invested aft his death: 10% successful Treasury bills and 90% successful a low-cost S&P 500 fund.

The 3 words that came adjacent were arsenic adjacent to an explicit endorsement for an ETF arsenic you'll find: "I suggest Vanguard's." That was written into his property plan, the instructions of a antheral who has go known arsenic 1 of the top investors of all-time.

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He's suggesting that 1 of the champion semipermanent investments 1 tin marque is the Vanguard S&P 500 ETF (NYSEMKT: VOO).

Why the S&P 500 works

The S&P 500 is designed to supply a wide cross-section of the U.S. economy. As companies turn larger, they summation much power successful the index. While the artificial quality (AI) gyration continues to grow the tech sector, the scale maintains meaningful vulnerability to the 11 superior S&P sectors.

That means investors tin summation entree to what's efficaciously the full U.S. economical maturation motor wrong a azygous ticker. The Vanguard S&P 500 ETF is 1 of the cheapest ways to ain it with an disbursal ratio of conscionable 0.03%. That means much of an investor's superior remains successful their pockets alternatively of successful the issuer's hands.

What Warren Buffett would similar astir VOO

In a word, diversification. Berkshire Hathaway's portfolio lone contains astir 30 stocks, a ample chunk of which is successful Apple and American Express. While that wouldn't look to marque a beardown lawsuit for diversification, Buffett's full beingness has been astir concern research.

For the mean retail investor, the diversified attack works better. As helium notes successful the letter, "The extremity of the non-professional should not beryllium to prime winners -- neither helium nor his 'helpers' tin bash that -- but should alternatively beryllium to ain a cross-section of businesses that successful aggregate are bound to bash well. A low-cost S&P 500 scale money volition execute this goal."

The Vanguard S&P 500 ETF provides casual and businesslike entree to that cross-section.

What Warren Buffett wouldn't similar astir VOO

What Buffett wouldn't admit is the presently dense weighting to the apical 10 holdings and the deficiency of value. Technology is intelligibly becoming the cornerstone of the U.S. economy. The S&P 500's 39% allocation to the assemblage reflects that reality. What's more, 39% is besides the existent value of the Vanguard S&P 500 ETF's apical 10 holdings. That's a batch of value to beryllium putting successful little than a twelve stocks.