S&P 500 vs. Gold: Warren Buffett Said Buy One and Forget the Other

The S&P 500 (SNPINDEX: ^GSPC) is seen as the best benchmark for the U.S. stock market. Several exchange-traded funds (ETFs) track the index, but the most popular is the Vanguard S&P 500 ETF (NYSEMKT: VOO). Meanwhile, gold is considered the ultimate safe-haven asset. A few exchange-traded funds track the metal, but the most popular is the SPDR Gold Shares ETF (NYSEMKT: GLD).

Warren Buffett recommended an S&P 500 index fund over the precious metal. "I don't see gold as a store of value," he said at Berkshire Hathaway's annual meeting in April 2005. "Forget about whether it's worked well the last 100 years, or the last 50 years, or the last 10 years. I see no reason why it would work well in the future."

Interestingly, gold has actually outperformed the S&P 500 by 120 percentage points since Buffett made that statement. So, which one is the better long-term investment today?

Image source: Getty Images.

Why own the Vanguard S&P 500 ETF

The Vanguard S&P 500 ETF measures the performance of the S&P 500, which itself is an index comprising 500 large U.S. companies. It includes growth stocks and value stocks from every market sector, and covers about 80% of domestic equities and 50% of global equities by market value.

Why own an S&P 500 index fund? The benchmark index offers diversified exposure to the most influential companies in the world. Its largest holdings include Nvidia, Apple, Alphabet, Microsoft, and Amazon. More broadly, the S&P 500 tracks the U.S. economy, which is the largest and (subjectively) the most innovative economy in the world.

I say that because the vast majority of the largest technology companies are domiciled in the U.S. In fact, the five technology stocks I just mentioned are the five largest companies on the planet. That means the U.S. economy (and the S&P 500) are very well positioned to benefit from the artificial intelligence (AI) revolution.

Why own the SPDR Gold Shares ETF

The SPDR Gold Shares ETF tracks the spot price of gold by dividing physical bullion held in vaults into shares. The fund lets investors participate in the gold market without the hassle of buying, transporting, storing, and insuring the actual metal. Also, the fund is more liquid than physical bullion because it can be bought and sold almost instantly.

Why own gold? The investment thesis centers on its status as a safe-haven asset, which means it generally retains value (or even appreciates in value) through periods of market turbulence, geopolitical instability, and economic weakness. That happens because gold is a finite asset. It cannot be printed by governments, and its value does not depend on the financial results of any company.

Furthermore, gold is somewhat unique in that it benefits from cyclical and countercyclical demand. In other words, consumer demand for gold increases during periods of economic strength, not only in the form of jewelry, but also in technology products like smartphones. And investor demand for gold increases during periods of economic weakness.

The SPDR Gold Shares ETF beat the S&P 500 over the last five years (but there is a catch)

The SPDR Gold Shares ETF advanced 151% over the last five years, while the Vanguard S&P 500 ETF posted a total return of 82%. That means gold prices outpaced the U.S. stock market by 69 percentage points. But there is a simple explanation.

The two funds were more or less tied until President Donald Trump took office in early 2025. Since then, his policies and actions have been a near-constant source of economic uncertainty and geopolitical turbulence, creating a perfect environment for gold price appreciation.

Even so, the S&P 500 has generally been a better investment over longer periods, as shown below:

• 10 years: The S&P 500 beat gold by 55 percentage points.
• 20 years: The S&P 500 beat gold by 92 percentage points.
• 30 years: The S&P 500 beat gold by 700 percentage points.

So, which is the better investment today? The S&P 500 tends to perform well during periods of economic strength and I believe AI will be a major tailwind for the economy over the next decade. So, I would keep a much larger percentage of my money in an S&P 500 index fund.

However, despite Warren Buffett's dislike, gold has dominated the S&P 500 during periods of extreme inflation and geopolitical turmoil, according to strategists at Charles Schwab. So, I think investors can keep a small percentage of their money in the SPDR Gold Shares ETF as a hedge against stock market downturns.

Charles Schwab is an advertising partner of Motley Fool Money. Trevor Jennewine has positions in Amazon, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Microsoft, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool recommends Charles Schwab and recommends the following options: short June 2026 $97.50 calls on Charles Schwab. The Motley Fool has a disclosure policy.