If I Were in My 40s, I'd Buy This Vanguard ETF Warren Buffett Recommended and Hold It Forever

Warren Buffett served as chief executive officer of the Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB) holding company between 1965 and 2025. Over that 60-year period, his investment decisions turned it into a $1 trillion conglomerate with numerous wholly owned subsidiaries, a $350 billion stock portfolio, and more than $300 billion in cash holdings.

Berkshire stock returned 19.7% per year under Buffett, so an investment of $1,000 in 1965 would have been worth $48.4 million by the time he stepped down. But he was a full-time professional, so he always knew the average investor would struggle to replicate his results. Therefore, he consistently advocated for exchange-traded funds (ETFs) that track a diversified index like the S&P 500 (SNPINDEX: ^GSPC).

In his 2013 annual letter to shareholders (published in February 2014), Buffett specifically recommended the Vanguard S&P 500 ETF (NYSEMKT: VOO) because of its extremely low fees. While young investors in their 20s and 30s can afford to take risks, those in their 40s might be thinking about carving a path to a financially secure retirement, which is where Buffett's advice really shines. Here's why I'd be buying the Vanguard ETF if I were in that age group.

Image source: The Motley Fool.

Exposure to 500 companies from 11 economic sectors

The S&P 500 is the most diversified of the major U.S. stock market indexes. It's made up of 500 companies from 11 different sectors of the economy, and it has very strict entry criteria; for example, its members must maintain a market capitalization of at least $22.7 billion, and they also must be profitable. But even after ticking those boxes, a special committee gets the final say over which companies make the cut.

The S&P is weighted by market capitalization, so the largest companies in the index have a greater influence on its performance than the smallest. Therefore, although the index is highly diversified, the technology sector alone has a weighting of 38.8% because it's home to three of the world's four largest companies: Nvidia, Apple, and Microsoft, which have a combined value of $13.7 trillion.

Below are the top five sectors in the Vanguard S&P 500 ETF by weight, and their three largest constituents:

Data source: Vanguard. Sector weightings are accurate as of June 30, 2026, and are subject to change.

The other six sectors are industrials, consumer staples, energy, utilities, materials, and real estate.

The technology sector often leads the broader market higher, but it has made a particularly large contribution to the returns of the S&P 500 since the start of 2023, which is when the artificial intelligence (AI) revolution started gathering momentum. The index has climbed by 102% since then, but if we exclude the information technology sector, its return drops to just 64%.

^SPXIFTS data by YCharts

Simply put, the Vanguard S&P 500 ETF gives investors ample exposure to the fastest-growing areas of the market with a healthy degree of diversification, which is why it's a great long-term investment option.

Taking Buffett's advice would have yielded fantastic results

The S&P 500 has returned an average of 10.7% per year since it was established in 1957. But it has delivered a much higher annual return of 13.9% since Buffett recommended the Vanguard S&P 500 ETF in 2014, thanks to rapid growth in industries like AI, cloud computing, enterprise software, and more.

That means an investor who parked $20,000 in the ETF 12 years ago would be sitting on $95,348 today. That doesn't include costs, but with an ultra-low expense ratio of 0.03%, investors would incur an annual fee of just $3 for every $10,000 they have invested in the fund.

A 45-year-old investor who plans to retire at 67 could build a very nice nest egg using the Vanguard S&P 500 ETF, although its eventual size will depend on the average annual return from here.

Calculations by author.

But I probably wouldn't sell my entire position at retirement age, because the magic of compounding yields the greatest results over time. Hopefully, with a large enough balance after 22 years, the subsequent annual returns provide a robust income that can enhance life after employment.

JPMorgan Chase is an advertising partner of Motley Fool Money. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AbbVie, Alphabet, Amazon, Apple, Berkshire Hathaway, Eli Lilly, Home Depot, JPMorgan Chase, Meta Platforms, Microsoft, Netflix, Nvidia, Tesla, Vanguard S&P 500 ETF, and Visa. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.