The 1 Vanguard ETF That Warren Buffett's Recent Remarks Suggest He Would Buy Right Now

Warren Buffett is unquestionably one of the most famous investors in the world. For decades, people have flocked to Berkshire Hathaway's (NYSE: BRK.A)(NYSE: BRK.B) annual meetings to hear what he has to say about the market and the economy.

During those meetings (and in many other venues), Buffett has long suggested that most people should take a much simpler approach to investing than he does: a set-it-and-forget strategy that focuses on large-cap U.S. equities via index funds.

For example, at a press conference following Berkshire's 2007 annual meeting, Buffett said that "a very low-cost index is going to beat a majority of the amateur-managed money or professionally managed money." Which index is Buffett referring to? The S&P 500 (SNPINDEX: ^GSPC).

Not only has Buffett's preference for the S&P 500 been clear, so too has his preference for which S&P 500 fund he likes best: the Vanguard S&P 500 ETF (NYSEMKT: VOO).

Source: Getty Images.

Buffett endorses the Vanguard S&P 500 ETF

The best way to judge someone's conviction in an investment pick is whether or not they actually invest in it. In that vein, here's what Buffett wrote in his 2013 letter to Berkshire Hathaway shareholders, regarding the instructions he had left in his will for the management of the money he would leave to his wife:

"My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard's.) I believe the trust's long-term results from this policy will be superior to those attained by most investors."

You really can't be much clearer than that.

But let's take a look at what else Buffett has said lately that supports the idea that VOO would be his Vanguard ETF pick.

"In my view, for most people, I think that the best thing to do is buy ... an S&P 500 index fund."

Buffett said this at Berkshire's 2021 annual shareholder meeting. His belief in this strategy stems from the acknowledgement that most people aren't financial market experts -- and that a majority of the paid professionals can't beat the major averages consistently. Add in investors' propensity to buy high and sell low due to emotional trading, and Buffett's suggestion to just buy the market and let it grow makes sense.

"Just pick a broad index like the S&P 500. Don't put your money in all at once; do it over a period of time."

Another tactic that Buffett advocates for retail investors is long-term dollar-cost averaging. By investing slowly and steadily over time, investors can both take advantage of the power of compound growth and mitigate their risk of buying an investment at a bad time.

The S&P 500 or any broadly diversified large-cap index is a natural fit for this strategy. Buffett himself agrees.

"In 58 years of Berkshire management, most of my capital-allocation decisions have been no better than so-so."

This might be the strongest argument that he can make for just investing in the index. Despite his reputation as a master investor, Buffett only considers himself average.

His long-term track record might suggest otherwise, but his point is still valid. Most investors who attempt to pick individual stocks will not beat the S&P 500 over time, so why not just buy the index and be done with it? Plus, the Vanguard S&P 500 ETF has a rock-bottom expense ratio of just 0.03%, so the performance drag from its fees is minimal.

Why the S&P 500 Works

The S&P 500 is a market-cap-weighted collection of 500 of the largest U.S. companies. Many of them are large, durable cash-flow generators that make for ideal core portfolio holdings.

Investing in the S&P 500 is one of the best ways to invest in the entire U.S. economy. The largest sector exposures currently are technology (36.1%), financials (12.9%), consumer discretionary (10.5%), and communication services (10.1%).

The index's top five components are Nvidia, Apple, Alphabet, Microsoft, and Amazon. And while the index's diversification and exposure to every major sector helps to cushion it against the outsized influence of any individual company, it is worth recognizing that, at this point, those five alone account for about 31% of the value of the S&P 500.

For years, Buffett has repeatedly said that the S&P 500 is the best choice for investors. That makes the Vanguard S&P 500 ETF the one fund that he'd probably choose for his own portfolio.

David Dierking has positions in Apple. 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 the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.