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Buffett Favors Vanguard S&P 500 ETF: Should You?

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Billionaire investors often prefer simpler methods to make money, and a prime example of this is their use of exchange-traded funds (ETFs) like Vanguard S&P 500 ETF (VOO - Free Report) .

Prominent Billionaires and the Vanguard S&P 500 ETF (VOO - Free Report)

Warren Buffett and Ken Griffin are two of the most successful investors globally. Both have opted for simplicity by investing in the Vanguard S&P 500 ETF (VOO - Free Report) , per a Yahoo Finance article.

Buffett, the chairman of Berkshire Hathaway, which is valued over $850 billion, has even recommended this ETF in his will for his family's inheritance. Similarly, Griffin’s hedge fund, Citadel, not only invests in the same ETF but also holds a significant number of options on it.

Simple Investing Among Competitive Strategies

While it might seem counterintuitive for competitive funds like Citadel to invest in a basic S&P 500 index ETF, Griffin has acknowledged the strategic wisdom in such an investment. This aligns with Buffett’s philosophy, as highlighted in his communications to Berkshire Hathaway shareholders.

Notably, Citadel is returning all of 2023′s $7 billion in profits to investors and the firm has handed back about $25 billion to investors since 2018. The financial giant has about $58 billion in assets under management.

Why the Vanguard S&P 500 ETF Stands Out

The Vanguard S&P 500 ETF is one of the largest in the market, with assets totaling over $430 billion. The ETF’s popularity is largely due to its tracking of the S&P 500 index, which includes 500 of the largest U.S. companies across various sectors.

Technology (34.23%), Consumer Discretionary (14.18%) and Industrials (12.14%) are the top three sectors of the fund. The fund provides wide diversification and has historically yielded strong returns, averaging over 10% annually including dividends. Its low expense ratio of only 0.03% further enhances its appeal.

The fund's top holdings are Microsoft (MSFT - Free Report) (7.07%), Apple (AAPL - Free Report) (5.63%) and Nvidia (NVDA - Free Report) (5.05%).  The fund's low expense ratio of only 0.03% further enhances its appeal.

SPDR S&P 500 ETF (SPY - Free Report) is also based on the S&P 500. But the fund's expense ratio is higher at 0.09%. The ETF SPY has a Zacks Rank #3 (Hold). Meanwhile, iShares Core S&P 500 ETF (IVV - Free Report) has a Zacks Rank #1. The fund IVV charges 3 bps in fees, like VOO.

Inside S&P 500’s Resilience

The S&P 500 index has offered 70.4% gains in the past five years, 21.1% return in the past one year and lost 1% in the past five days.

Investors should also note that the S&P 500 fell by an average of 31% during the last 10 recessions, per a Motley Fool article. With the index currently hovering around an all-time high, the implied downside would be about 30% if a recession hit the U.S. economy in 2024. However, chances of a recession are very low this year and the next with the economy showing strong resilience.

Long-term investors can stay calm, as historical data show that the S&P 500 has consistently bounced back from previous downturns, rather quite rapidly. On occasions of the last ten recessions, the index has typically delivered an average return of 40% in the twelve months following its lowest point.

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