This Is the 1 ETF Warren Buffett Recommends for Most Investors
Even if you don’t know much about investing or the stock market, you’ve probably heard the name Warren Buffett before. Warren Buffett is the chairman and CEO of Berkshire Hathaway and one of the most successful investors of our…
Even if you don’t know much about investing or the stock market, you’ve probably heard the name Warren Buffett before.
Warren Buffett is the chairman and CEO of Berkshire Hathaway and one of the most successful investors of our time. With an estimated net worth of over $140 billion, it’s clear that he’s an expert in picking stocks.
Throughout the years, Buffett tends to get asked the same question — how should ordinary people invest their money? And there’s one recommendation he tends to give that you may want to consider.
The one investment Buffett touts for everyday investors
Buffett recognizes that not everyone has the stock-picking prowess he does. That’s why he recommends a different strategy for the typical investor than the one he uses himself — putting money into an S&P 500 ETF (exchange-traded fund).
The reason S&P 500 ETFs are a great bet for everyday investors is that they don’t require a lot of knowledge or legwork. When you buy stocks on an individual basis, it’s important to do your research. That means looking at balance sheets and numbers to determine if they’re a good buy. You also need to keep track of individual stocks and rebalance your portfolio as they gain and lose value.
Investing in the S&P 500 index is a lot simpler. The index consists of the 500 largest publicly traded companies. This means you’re putting your money into established businesses, many of which have a long history of success.
Just as importantly, an S&P 500 ETF gives you instant diversification in your portfolio. It’s essential to invest across a range of market sectors. An S&P 500 ETF allows you to do that without having to buy a variety of stocks.
Plus, an S&P 500 ETF is an investment you can truly set and forget. That’s a good thing if you consider yourself a hands-off investor.
The one drawback of following Buffett’s advice
There’s a reason Buffett’s personal investment strategy differs from his advice above. He’s fully aware that there are limits as to how well you might do if your portfolio mostly or solely consists of an S&P 500 ETF.
While an S&P 500 ETF will aim to match the performance of the S&P 500 index, it won’t help you beat the market. If that’s a goal of yours, then you may not want to follow Buffett’s advice.
However, Buffett also says that beating the S&P 500’s returns is a challenge even for experienced investors who know what they’re doing and aren’t afraid to put in the time to research companies on an individual basis. So if you’re looking for an easy way to build a diversified portfolio for retirement, you may want to do what Buffett suggests.
Buy shares of an S&P 500 ETF, sit tight, and hold them for years. You can supplement with individual stocks in your portfolio if you feel comfortable doing so and are willing to do the research. Chances are, you’ll be happy with the end result.
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Maurie Backman has more than a decade of experience writing about financial topics, including retirement, investing, Social Security, and real estate. Her work has appeared on sites that include The Motley Fool, USA Today, U.S. News & World Report, and Kiplinger.
Prior to becoming a full-time financial writer, Maurie worked in the financial industry trading distressed debt. She then changed course and spent a few years designing electronic toys. After a stint in content marketing and UX, she shifted back into writing and has since covered everything from the housing market to estate planning to Medicare.
When she's not busy writing, Maurie can be found hiking, walking her dogs, driving her kids to their various sports practices and games, and curling up with a good book. She cooks on occasion and bakes way too often.
