2 Top ETFs to Invest Like Warren Buffett

Warren Buffett's value-based investment philosophy has long been a roadmap for investors seeking to recreate his strategy long-term wealth creation. As markets get volatile this earnings season, Buffett's well-known advice to invest in index funds, particularly those tracking the S&P 500 Index ($SPX), has gained renewed interest for investors seeking a buffer from the heightened volatility that can hit individual stocks - even big winners, like Nvidia (NVDA).

Why Buy the S&P 500?

The S&P 500 investment is one that Buffett often recommends for the average investor due to its simplicity, as well as its baked-in diversity. And while it's fair to say that large-cap tech names have come to dominate the S&P 500, Buffett's own Berkshire Hathaway (BRK.B) is among the index's top 10 holdings - showing that tech hasn't completely taken over just yet. In fact, a bet on the S&P 500 ends up being a decent-sized bet on Berkshire itself, given the company's sector-leading size in the financial space, at $930 billion. 

Drilling down further by S&P sector, the market cap-weighted SPX is currently composed of about 31% tech, led by industry giants Apple (AAPL), Microsoft (MSFT), and of course, Nvidia. 

That's followed by financials at 13%, and healthcare at 11.9%, with Eli Lilly (LLY) the biggest name of the latter group. Consumer discretionary, where S&P classes both Tesla (TSLA) and Amazon (AMZN), accounts for 10% overall, while communication services - think Alphabet (GOOGL), Meta (META), Disney (DIS), and the telecoms - represent 8.9%.

All Eyes on Buffett, Berkshire, and the S&P

Meanwhile, with the billionaire investor set to take the spotlight amid Berkshire's weekend earnings release, investors will no doubt be watching to see if Buffett's recent streak of selling stocks - and building his cash hoard - continues.

Heading into the quarterly report, the SPX dropped sharply on Friday amid rising concerns of economic weakness, and the index closed right atop its 20-week moving average. While macro headlines will no doubt continue to give stocks their direction next week, from a technical standpoint, this sets the stage for a potential repeat of the bounce from this trendline that previously took place in April.

For investors looking to copy Warren's legendary S&P 500 strategy, there are plenty of popular exchange-traded funds (ETFs) tracking this index - but only two are held in Berkshire's own portfolio.

The SPDR S&P 500 ETF Trust (SPY) and the Vanguard S&P 500 ETF (VOO) have become two of the largest and most liquid ETFs in the market, with both offering investors an efficient way to implement Buffett's buy-and-hold advice. For those with a Buffett-inspired eye for detail, here's how they compare.

SPDR S&P 500 ETF (SPY)

The SPDR S&P 500 ETF Trust (SPY) is a staple in the world of ETFs. Launched back in 1993, SPY was the first ETF to hit the U.S. markets, and has since become a go-to for investors seeking broad exposure to the U.S. large-cap equity market. 

SPY is designed to track the S&P 500 Index, offering investment results that correspond to the index's performance. It's a passive strategy ideal for those looking to invest in the 500 largest U.S. companies without active management.

One of the big reasons SPY is so popular is its size and liquidity. SPY manages a whopping $549.6 billion in assets, making it one of the largest ETFs out there. This massive asset base translates into high liquidity, with average volume of over 51 million shares. This kind of liquidity means you can easily buy and sell shares without worrying about slippage, making SPY an ideal vehicle for long-term investors and active short-term traders alike.

There's an active options market, too, making SPY a natural choice to speculate on price or hedge against a downturn.

Performance-wise, SPY is up 11.87% so far in 2024, keeping pace with its underlying benchmark. Plus, SPY offers quarterly dividends, with a current annual dividend yield of 1.26%. 

With a performance that delivers on its strategy, a highly liquid and active market, and diverse equity exposure across multiple sectors, it's easy to see why SPY is the go-to recommendation for Buffett. 

That said, with an expense ratio of 0.09%, SPY isn't necessarily the best value out of the S&P 500 ETF lineup.

Vanguard S&P 500 ETF (VOO)

Enter the Vanguard S&P 500 ETF (VOO), another major player in the world of exchange-traded funds. Launched in 2010, VOO has quickly become a favorite for investors seeking broad exposure to the U.S. large-cap equity market. 

Like SPY, VOO's investment strategy is to track the performance of the S&P 500 Index. This passive approach has proven effective, as evidenced by VOO's solid returns. The fund is up just over 12% on a YTD basis.

Plus, VOO pays dividends quarterly, with the most recent payment of $1.78 per share translating to a dividend yield of 1.33%.

Currently, the fund has $482.13 billion under management, with average trading volume of around 5.8 million shares. This level of liquidity means investors can easily buy and sell shares, although the market isn't quite as robust as SPY. Similarly, while VOO is optionable, daily volume is generally less than 5,000 contracts.

However, in a crowded field, perhaps the biggest draw for VOO is its low cost. With an expense ratio of just 0.03%, it's one of the most cost-efficient S&P 500 tracking options out there. This low fee structure allows long-term investors to keep more of their returns over time, making VOO an attractive choice for those who are mindful of costs. 

The Bottom Line on Buffett's ETF Picks

In a nutshell, both SPY and VOO are stellar options for anyone looking to invest like Warren Buffett, but your personal preference will likely come down to a few key details. SPY offers nearly unmatched liquidity with an incredibly active options market, while VOO shines with its ultra-low expense ratio and solid performance. 

Either way, both ETFs provide broad and diverse exposure to the U.S. large-cap market, making them solid options for nearly anyone seeking a “set it and forget it” investment to buy and hold for the long haul.