Most people assume that the world’s most successful investors have some edge that regular people can’t access. Better information. Smarter models. A network of insiders who call before the news breaks. Warren Buffett spent 60 years proving that assumption wrong, building one of the greatest fortunes in history through patience and simplicity rather than complexity.
And yet when people ask him what they should do with their money, his answer has been the same for decades. It’s not a stock tip. It’s not a sector call. It’s an ETF that anyone can buy for three cents on every hundred dollars invested.
What Warren Buffett actually recommends for most investors
Buffett has made his position clear in shareholder letters, interviews, and annual meetings going back years. In his 2016 shareholder letter, he wrote: “My regular recommendation has been a low-cost S&P 500index fund.” At Berkshire’s 2021 annual meeting, he said: “In my view, for most people, I think that the best thing to do is buy an S&P 500 index fund.”
The most direct version of the advice came in his 2013 letter to Berkshire Hathaway shareholders, where he described the instructions he had written into his will for the money he would leave to his wife: “My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors, whether pension funds, institutions or individuals, who employ high-fee managers,” according to The Motley Fool.
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He wasn’t being modest. He was being precise. This is the same man who beat the market by an enormous margin over six decades, and he was saying that for his own wife’s trust, a simple index fund would beat most professional managers.
Why the Vanguard S&P 500 ETF fits exactly what Buffett describes
Vanguard S&P 500 ETF (VOO) tracks the S&P 500, charges 0.03% a year, and has grown to more than $950 billion in assets. Three cents on every hundred dollars. On a $10,000 investment that’s $3 annually in fees. That’s it. That’s what Buffett means when he says low cost, and that’s why he keeps naming Vanguard specifically when people ask which fund.
VOO gives investors exposure to 500 of America’s largest companies across all 11 sectors of the economy, from technology and healthcare to energy and consumer staples. The top holdings include Nvidia, Microsoft, Apple, Amazon, and Alphabet. Any component that deteriorates over time gets removed and replaced. The index self-corrects without the investor having to do anything.
VOO has averaged about 15% annual growth over the past decade. Nobody enjoyed the 2020 crash while it was happening. Or any of the other rough patches in between. But the return is what you get if you didn’t sell, and most of the people who did sell locked in losses they never recovered.
“For investors building a long-term portfolio, that data and that bet point in the same direction Buffett has been pointing for decades.”Daniel/Getty Images
How Buffett’s own portfolio proves the buy-and-hold case
Buffett’s advice to buy and hold isn’t just something he says. It’s how he invested throughout his career at Berkshire Hathaway. He first bought Coca-Cola in 1988. By 1994, Berkshire had spent $1.3 billion to complete its position. The annual dividend from that investment grew from $75 million in 1994 to $704 million by 2022. The position is now worth around $30 billion and represents about 9% of Berkshire’s portfolio. He never sold.
American Express tells a similar story. Buffett’s interest goes back to the 1960s. Berkshire completed its purchases in 1995 for $1.3 billion. The annual dividends grew from $41 million to $302 million. The position is now worth nearly $46 billion, about 22% of the portfolio. He never sold that either.
His point is straightforward. Time in the market, combined with low costs, does most of the work. The temptation to trade, rotate, and optimize is usually what gets in the way.
What the data says about active management vs VOO
Buffett’s skepticism about active management is not just philosophy. The numbers back him up. Over the past 10 years, more than 85% of large-cap mutual funds available to U.S. investors have underperformed the S&P 500 after fees. Over 15 years, nearly 90% of those funds lagged the benchmark, according to The Motley Fool, citing S&P Dow Jones Indices data.
In 2007, Buffett put $1 million behind that argument. He bet Protégé Partners, a fund-of-funds firm, that a simple Vanguard S&P 500 index fund would beat their hand-picked selection of five hedge funds over ten years. By 2017, the index fund had returned 125.8% over the decade. The five hedge funds returned 21.7%, 42.3%, 87.7%, 2.8% and 27% respectively. Buffett donated the winnings to Girls Inc. of Omaha. The bet wasn’t even close.
For investors building a long-term portfolio, that data and that bet point in the same direction Buffett has been pointing for decades. VOO isn’t exciting. It doesn’t have a story. It doesn’t have a manager with a track record or a thesis about which sector is about to take off. What it has is broad exposure to the U.S. economy, extremely low cost, and sixty years of evidence from the world’s most successful investor that it’s the right call for most people.
