Warren Buffett, at the helm of Berkshire Hathaway, manages a portfolio worth $295 billion comprising 45 publicly listed stocks and securities. He also possesses various businesses and a substantial cash reserve of $325 billion. Since 1965, Berkshire Hathaway has achieved a compound annual growth rate of 19.8%, outpacing the S&P 500’s average annual return which stands at 10.2%.
Buffett frequently points out that the typical retail investor would find it challenging to replicate his investment achievements. He often advises small investors to opt for exchange-traded index funds (ETFs) instead. Berkshire holds shares in two such funds: the Vanguard S&P 500 ETF and the SPDR S&P 500 ETF Trust.
While both ETFs track the S&P 500 index, the Vanguard fund may offer greater advantages for the average investor due to its lower costs. An analyst from Wall Street has forecasted that the Vanguard S&P 500 ETF might yield a 150% return by 2030. This ETF includes 500 of the largest companies in the U.S. across every one of the 11 economic sectors.
To be included in the S&P 500, companies must maintain a market capitalization of at least $18 billion and demonstrate profitability over the preceding 12 months. The index undergoes quarterly adjustments to maintain the inclusion of only high-caliber companies.
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The Vanguard S&P 500 ETF replicates the S&P 500 by incorporating identical stocks with corresponding weightings. Its expense ratio is a mere 0.03%, classifying it as one of the most affordable ETFs on the market. On the other hand, the SPDR S&P 500 ETF Trust has a higher expense ratio of 0.09%.
The S&P 500 is weighted according to market capitalization, meaning that larger firms have a more substantial impact. The technology sector, spearheaded by companies like Nvidia, Apple, and Microsoft, accounts for a 31.7% share. These firms are front-runners in artificial intelligence (AI), anticipated to generate significant economic value in the years ahead.
Berkshire Hathaway ranks as the seventh-largest holding in the Vanguard ETF, alongside other major players like Tesla, JPMorgan Chase, and Costco Wholesale. Tom Lee from Fundstrat Global Advisors projects that the S&P 500 could potentially hit 15,000 by 2030, which would signal a 150% rise. This prediction is grounded in demographics and the ascending relevance of AI, contributing to a surge in automation and productivity.
Conversely, potential global recessions, unexpected economic shocks, or underwhelming AI performance might hinder this anticipated expansion. Even if the S&P 500 doesn’t achieve a 15,000 milestone by 2030, historical patterns imply that it will reach that point eventually. For everyday investors, Buffett’s counsel to put money into a diversified ETF, such as the Vanguard S&P 500, could be a prudent long-term decision.
