Warren Buffett has repeatedly said that the S&P 500 is one of the best investments for the average investor.
Analysts believe that AI adoption will continue to drive up earnings for S&P 500 companies.
The S&P 500 has averaged annualized total returns of 14.5% over the past decade.
10 stocks we like better than Vanguard S&P 500 ETF ›
There are many successful and renowned investors on Wall Street, but it can be legitimately argued that none have had the same impact as Warren Buffett. Since he took over Berkshire Hathaway In 1965, Buffett built the company into a trillion-dollar conglomerate that routinely outperforms the market.
From 1965 to 2024, while Buffett was at the helm of Berkshire, its shares increased by more than 5,500,000% (that is, an annualized growth rate of 20%), while the S&P 500(SNPINDEX: ^GSPC) has increased more than 39,000% (an annualized growth rate of 10%). To call that impressive would be an understatement.
Despite Buffett and Berkshire’s fairly consistent ability to outperform the market, one piece of advice Buffett has repeatedly given to retail investors is to invest in an S&P 500 exchange-traded fund (ETF). It may not be the most attractive investment, but according to Julian Emanuel of Wall Street research firm Evercore ISI, it could provide investors with returns of 37% by the end of 2026.
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The S&P 500 is an index that tracks 500 of the largest and most influential American companies. All 11 major sectors are represented in its components, and the companies within it represent approximately 80% of all value in the US stock market, so it is often seen as a way to invest in the country’s economy. Here’s how the S&P 500 weighting was split by sector as of August 31:
Information technologies: 33.5%
Finance: 13.8%
Consumer Discretionary: 10.6%
Communication services: 10%
health care: 9.1%
Industrial stocks: 8.5%
Consumer staples: 5.2%
Energy: 3%
Utilities: 2.4%
Real estate: 2%
Materials: 1.9%
The technology sector makes up a large portion of the S&P 500 because the index is weighted by market capitalizations. This means that larger companies represent larger fractions of the index, and as the rise of artificial intelligence (AI) has skyrocketed many mega-cap tech stocks, they have come to represent a huge portion of the S&P 500’s value.
There are a few S&P 500 ETFs that investors can choose from, but my pick, and one that Berkshire kept in its portfolio until recently, is the Vanguard S&P 500 ETF(NYSEMKT:VOO) for its low cost. Its 0.03% expense ratio means investors will pay just $0.30 per year for every $1,000 they have in the fund.
At the time of writing, the S&P 500 level is 6,552, while the Vanguard S&P 500 ETF share price is just over $600. (Indices don’t have prices, but the ETFs that track them do.) Evercore ISI’s Emanuel predicts that a bull market bubble could lift the S&P 500 to 9,000 by the end of 2026. That 37% increase would put the price of VOO near $825.
The basis for this bullish bubble prediction is that AI adoption will continue to drive earnings growth for S&P 500 companies, which should improve investor confidence. The more optimistic investor sentiment becomes, the more likely it is that investors will continue to pour money into S&P 500 companies and drive up the index’s valuation.
One thing remains true about the stock market: No one can reliably predict how stocks or ETFs will perform, especially in the short term. Not me, not you, not Buffett, not any Wall Street analyst. However, an investment’s past performance can provide insight into its potential, especially when it has been consistent over the long term.
Historically, the S&P 500 has averaged annualized returns of around 10% over the long term. Over the past decade, its returns have been even more impressive, averaging 12.5% ​​and 14.5% when reinvested dividends are included.
^SPX data from YCharts
These returns are less than the expected gains of 37% over about 14 months, but they have still been impressive, and investing in S&P 500 index funds has made many investors quite a bit of money over the years.
Regardless of whether VOO reaches Emanuel’s ambitious goal by the end of 2026, it’s an investment that could be a staple holding in virtually any portfolio.
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Stefon Walters has positions in the Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Berkshire Hathaway and the Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
Warren Buffett Recommends 1 Vanguard Index Fund That Could Soar 37% in Just Over 1 Year, According to This Wall Street Analyst Originally Published by The Motley Fool
