Warren Buffett, the head of Berkshire Hathaway, manages a diverse portfolio containing 45 publicly traded equities and securities valued at $315 billion. Additionally, he possesses a cash reserve of $277 billion and operates several private, wholly owned enterprises. Buffett has an exceptional investment history.
His strategic choices have driven Berkshire stock to a compound annual return of 19.8% since he took over in 1965, vastly outperforming the S&P 500 index, which has averaged an annual gain of 10.2% during the same timeframe. Buffett understands that regular investors often find it challenging to match his returns through the selection of individual stocks.
Therefore, he typically advises them to consider investing in ETFs (Exchange Traded Funds). Within its holdings, Berkshire features two ETFs: the Vanguard S&P 500 ETF (NYSEMKT: VOO) and the SPDR S&P 500 ETF Trust. Both funds aim to replicate the performance of the S&P 500 by acquiring the same stocks and maintaining comparable allocations.
The Vanguard ETF is more cost-effective, making it a superior option for numerous investors. According to a specific Wall Street analyst, the Vanguard S&P 500 ETF may have an upside potential of 163% by 2030. The S&P 500 has rigorous eligibility requirements.
To qualify, companies must possess a market capitalization of at least $18 billion and demonstrate profitability. Membership is determined by a committee that rebalances the index quarterly. When investors allocate funds to the Vanguard S&P 500 ETF, they can be confident they are obtaining exposure to some of the highest-quality companies available.
With an expense ratio of 0.03%, it is significantly cheaper to hold than the SPDR ETF, which has an expense ratio of 0.09%. The ETF comprises 11 distinct sectors, with technology making up the largest portion at 31.1%, followed by financials at 13.2%, and healthcare at 12.2%.
The technology sector is expected to drive the S&P 500’s growth for years, as it houses some of the most valuable corporations globally.
Buffett’s forecast for ETF expansion
The index is structured based on market capitalization.
The top five holdings within the Vanguard S&P 500 ETF collectively hold a market cap of $12.9 trillion, representing slightly over 25% of the overall value of its portfolio, which consists of 500 companies. Although Wall Street analysts aren’t infallible, Fundstrat Global Advisors’ managing partner Tom Lee has made a number of precise predictions regarding the S&P 500 recently. Lee’s latest end-of-year projection stands at 5,700 for the S&P 500.
Given that it closed at 5,702 on September 20, he appears likely to add this to his list of accurate forecasts. Earlier this year, he also proposed a long-term outlook that suggests the index may exceed 15,000 by 2030.
This indicates a potential upside of 163% from its current position, which represents the returns investors could anticipate from the Vanguard S&P 500 ETF if his predictions hold true. Lee mentions that advancements in AI will be a major contributor to this growth. He projects a shortage of 80 million workers globally by the decade’s end.
This situation will likely lead to increased investments in AI technologies aimed at automating numerous jobs. Additionally, he points to a substantial demographic wave approaching, with millennials and Gen Zers stepping into their peak earning years (ages 30 to 50). This is when individuals typically earn the most and make significant financial decisions, such as investing.
Nonetheless, risks remain. A worldwide recession may delay Lee’s 15,000 target. If AI technology fails to deliver on its promises, some of the largest stocks may experience prolonged underperformance.
Regardless, even if the S&P 500 does not achieve 15,000 by 2030, historical trends indicate it’s likely to reach that mark eventually. Investors should seriously contemplate Buffett’s suggestion to invest in the Vanguard S&P 500 ETF. It’s essential to evaluate potential risks comprehensively and perform diligent research before making any investment choices.
Nonetheless, the Vanguard S&P 500 ETF continues to be a compelling option for those aiming to diversify their portfolios with reliable, high-quality companies.
