Do billionaire investors sometimes choose to press the proverbial easy button? You bet they do. Making money the easy way is preferable to doing it the hard way, no matter how much money you have.
The easy way to make money that I’m referring to is investing in exchange traded funds (ETFs). ETFs allow you to buy a basket of stocks without having to go to the trouble of researching each stock.
Warren Buffett and Ken Griffin stand out as two of the most prominent billionaire investors in the world. Buffett has led Berkshire Hathaway to reach a market capitalization of over $850 billion. Griffin founded Citadel, the most successful hedge fund ever. And both billionaires have pressed the easy button with one Vanguard ETF.
Great minds think alike
Buffett made an intriguing revelation about his will to Berkshire Hathaway shareholders in his 2013 annual letter. He said his will stipulates that 90% of the money his family inherited should be invested in a country S&P500 index fund. The legendary investor added, “I recommend Vanguard’s.”
He’s also put Berkshire’s money where his mouth is. The conglomerate’s portfolio holds dozens of stocks, but also includes two ETFs. One is the Vanguard S&P 500 ETF (NYSEMKT:VOO).
Griffin’s Citadel also has a stake in the Vanguard S&P 500 ETF. In addition, the hedge fund owns a large number of options on the fund.
This may be a bit surprising. In a message to Citadel investors earlier this month, Griffin wrote: “In every investment strategy, we strive to create as many competitive advantages as possible over other market participants.” Owning an S&P 500 index ETF may seem counter to that strategy. But like Buffett, Griffin sees the wisdom in owning VOO.
Why this Vanguard ETF is so popular
The Vanguard S&P 500 ETF is the third largest ETF on the market, with more than $430 billion in assets under management. During the past three months, the average daily share volume exceeded 5.3 million.
Why is this Vanguard ETF so popular? The S&P 500 index it tries to track is probably the most important factor. The S&P 500 includes the stocks of the 500 largest companies trading on US stock exchanges. It spans multiple sectors and industries and provides the diversification many investors are looking for.
The index is rebalanced regularly. This leads to a ‘survival of the fittest’ approach, where the companies that do not continue to grow are replaced by companies that do.
Many investors also recognize that the S&P 500 has performed well over the long term. It has delivered positive returns over every twenty-year period in history. The index’s average annualized return, including dividends, is well over 10%.
Several ETFs track the S&P 500. The main advantage of VOO is its low costs. The ETF’s annual expense ratio is just 0.03%.
Should you also become the owner of VOO?
Don’t invest in stocks or ETFs just because billionaire investors have done so, even in stocks or ETFs as successful as Buffett and Griffin. However, I think most investors should also own VOO.
This Vanguard ETF is an excellent starting position for novice investors. Advanced investors can also benefit from the diversification and long-term track record.
In his 2013 letter to Berkshire shareholders, Buffett wrote that an “investor who both diversifies and keeps costs minimal will almost certainly achieve satisfactory results.” As usual, he was right.
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Keith Speights holds positions in Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
Billionaires Warren Buffett and Ken Griffin both own this Vanguard ETF. Would you? was originally published by The Motley Fool
