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Is Warren Buffett Right About Buying the Indexes?

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  • (0:30) - Should You Be Buying Individual Stocks Or ETFs?
  • (5:45) -- Breaking Down The Major Index ETFs: Where Should Investors Set Their Sights?
  • (19:30) - Episode Roundup: VOO, QQQ, DIA, RSP, SPY


Welcome to Episode #224 of the Zacks Market Edge Podcast.

Every week, host and Zacks stock strategist, Tracey Ryniec, will be joined by guests to discuss the hottest investing topics in stocks, bonds and ETFs and how it impacts your life.

This week, Tracey went solo to discuss investing strategies.

Should you buy individual stocks or simply buy the indexes through ETFs?

Buffett Vouches for Indexing…Again

On May 2, Berkshire Hathaway held its annual shareholders meeting, but since it was during the coronavirus shutdown, it was live streamed.

Warren Buffett, Chairman of Berkshire, spoke for nearly 4 hours, giving a statement and then answering questions.

At one point, he said he hadn’t changed his will since revealing that most of the wealth he was leaving his wife was to be invested in basic index funds.

Buffett reminded listeners, that few beat the S&P 500 every year and those that do can thank Lady Luck. So putting your money in the indexes was the sensible way to invest.

Should you be an indexer, and if so, which ones should you buy?

5 Index ETFs to Consider

1.       Buffett is usually talking about the S&P 500 when he talks about “indexing.” It gives you a nice cross section of American businesses. Vanguard’s S&P 500 ETF (VOO - Free Report) has an expense ratio of just 0.03%. It’s considered one of the lowest cost options.

2.       Investors can also consider buying an equal weight S&P 500 ETF. That means every holding is weighted equally, instead of by market cap, where the tech titans tend to be over weighted. Invesco S&P 500 Equal Weight ETF (RSP - Free Report) is an option. But it’s down 18.6% year-to-date versus just 12% for the S&P 500 due to its different weighting.

3.       There are also options outside of the S&P 500 such as the NASDAQ. Invesco QQQ (QQQ - Free Report) is an oldie, but goodie. Inception was in March 1999, during the dotcom boom, and it tracks the NASDAQ 100. But be warned, Microsoft, Apple and Amazon are the three largest holdings and make up about 33% of the portfolio.

4.       Thinking the Dow is the way to go? The SPDR Dow Jones Industrial ETF (DIA - Free Report) invests in the index, which is made up of 30 components. It is price weighted which means the largest component is Apple, as it’s trading with the highest price. It’s 8.5% of the portfolio.

5.       What about the long-time favorite SPDR S&P 500 ETF (SPY - Free Report) ? It has the largest volume and is usually used by those who want to trade the index. It has an expense ratio which is higher than Vanguard’s VOO, at 0.09%.

Is Buffett right that indexes are the way to go?

Find out the answer to that question and what else you need to know about buying the indexes on this week’s podcast.

[In full disclosure, Tracey owns shares of VOO in her personal portfolio.]

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