Considering an Investment Strategy Akin to Warren Buffett's, Even on a Modest Budget, in 2025? Including This One Buffett-Endorsed Asset in Your Portfolio Immediately.
Considering an Investment Strategy Akin to Warren Buffett's, Even on a Modest Budget, in 2025? Including This One Buffett-Endorsed Asset in Your Portfolio Immediately.
Many investors would be thrilled with a performance like Warren Buffett's. This billionaire, leading Berkshire Hathaway, has overseen a compounded annual growth of nearly 20% over the past 58 years. This is in contrast to the S&P 500's compounded annual growth of about 10% during the same period. Thus, Buffett and his team's stock choices have consistently outperformed the market over the long term.
If you aim to achieve results comparable to Buffett's, you could emulate some of his strategies, such as investing in his preferred stocks. However, completely mirroring Buffett's performance might require purchasing shares of various stocks, which could be costly and challenging to manage. Also, you should watch for when Buffett decreases or eliminates a position.
But there's a less expensive and more manageable way to invest like Buffett in the future - and fortunately, it's simple. In addition to prominent stocks like Apple and Coca-Cola, Buffett incorporates another investment into his portfolio. Even he recommends this one as an excellent option for non-professional investors. Let's delve deeper into this Buffett-endorsed investment to consider incorporating it into your portfolio now with the potential for future gains.
Wagering on American corporations
Before introducing this asset, it's crucial to understand how it aligns with a fundamental aspect of Buffett's strategy: investing in strong American companies. "American business has excelled over time and will continue to do so," Buffett wrote in his 2013 letter to shareholders.
Examining Buffett's portfolio over time reinforces this notion, as he has consistently invested in companies that drive the US economy. Today, Apple, American Express, Bank of America, and Coca-Cola - four American giants - are Buffett's main holdings. American Express and Coca-Cola were also prominent holdings a decade ago, along with other prominent American corporations of the time.
Let's discuss the investment you should consider now to follow Buffett's footsteps. As mentioned, Buffett includes this in his portfolio to supplement the stocks he personally selects. I'm referring to an S&P 500 index fund. Buffett owns shares in the SPDR S&P 500 ETF Trust (SPY -1.44%) and the Vanguard S&P 500 ETF (VOO -1.44%). Both of these exchange-traded funds (ETFs) mimic the S&P 500 composition and consequently provide the same performance as the index.
A strategy that has demonstrated its strength
Why would you want your performance to mirror that of the S&P 500? Because over time, this benchmark has confirmed the strength of companies that drive the economy, delivering an annualized average gain of approximately 10% since its introduction as a 500-stock index in the late 1950s. History may not always repeat itself, but considering its track record and the quality of S&P 500 companies, there's a rationale for optimism about the index's potential to deliver growth over time.
Buffett not only owns S&P 500 index funds but also requested that his trustees invest 90% of his cash into an S&P 500 index fund upon his death. Therefore, this renowned investor is an advocate for long-term S&P 500 index investing.
So, how do you invest in these ETFs? The process is identical to investing in a stock. They trade daily on the market, making it simple for you to buy or sell. The only difference between them and stocks is their expense ratios. However, an ETF with an expense ratio of less than 1% will not significantly affect your returns. The SPDR and Vanguard funds meet this requirement, with expense ratios of 0.09% and 0.03%, respectively.
Upon incorporating one of these funds into your portfolio, it's essential to consider one other piece of advice from Buffett, known as the Oracle of Omaha. And that is to hold on for the long term, allowing this investment enough time to reflect the growth of its companies and potentially generate wealth for you over a prolonged period.
If you're interested in investing like Buffett at a lower cost, consider adding an S&P 500 index fund to your portfolio. Buffett himself owns shares in SPDR S&P 500 ETF Trust (SPY -1.44%) and Vanguard S&P 500 ETF (VOO -1.44%), both of which mimic the S&P 500 composition and deliver similar performance. These funds provide a simpler and more cost-effective way to invest in a diverse range of strong American companies over the long term, as Buffett believes in the long-term strength of the S&P 500.