The end of the year can be a great time to take a closer look at your investments – and maybe even boost your portfolio by investing in more stocks or funds.
Exchange traded funds (ETFs) can be an easy way to invest in dozens or even hundreds of stocks at once, making them an ideal choice for those who are short on time or prefer not to spend countless hours researching individual stocks.
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There are seemingly endless ETFs to choose from, all with their unique pros and cons. While there isn’t one right choice for everyone, there is one Warren Buffett-endorsed ETF that I’m stocking up on before the end of the year.
One of Warren Buffett’s most recommended investments is the S&P 500 ETF. This type of fund contains all shares within the S&P500 (SNPINDEX: ^GSPC) itself, which includes 500 of the largest and strongest companies in the US
By investing in just one stock of an S&P 500 ETF, you can instantly buy hundreds of stocks across a wide variety of sectors. This can yield immediate results diversificationreducing your risk with much less effort than buying a few dozen stocks individually.
Because the S&P 500 only includes large companies, all the stocks within the ETF are high-performance companies, ranging from Apple, AmazonAnd NvidiaUnpleasant Procter & Gamble, 3MAnd Coca-cola. If you want to gain exposure to industry leaders from all corners of the stock market, you can’t go wrong with an S&P 500 ETF.
By means of Berkshire HathawayBuffett owns two of these types of funds: the Vanguard S&P 500 ETF (NYSEMKT: VOO) and the SPDR S&P 500 ETF Trust (NYSEMKT: SPY).
A few years ago, Buffett even put his money where his mouth was by placing a $1 million bet that an S&P 500 fund could outperform a group of five actively managed hedge funds over a ten-year period.
The results? His investment delivered a total return of almost 126% during that time, while the hedge funds returned just 2.8% to 87.7%. Combined, the five hedge funds achieved an average return of approximately 36% over a ten-year period.
In Berkshire Hathaway’s letter to shareholders after the bet, Buffett noted:
There was nothing aberrational about stock market behavior over the past decade. Taking advantage of the opportunities offered does not require great intelligence, a degree in economics or familiarity with Wall Street jargon. What investors need then is the ability to ignore the fears and enthusiasm of the mafia and focus on a few simple fundamentals.