If a Stock Market Crash Is Coming, This Is the Vanguard ETF Warren Buffett Would Load Up On

The stock market has enjoyed a historical bull market over the last several years. Fueled primarily by artificial intelligence (AI), the S&P 500 (^GSPC +0.53%) has climbed to all-time highs.

Naturally, some investors are questioning whether the rally can continue. If the stock market experiences a correction or even crashes in 2027, investors might be tempted to sell their stocks and wait for conditions to improve.

I think doing the opposite could be considerably more rewarding in the long run. Legendary investor Warren Buffett has long supported a simple investment strategy that can help everyday investors build wealth through virtually any market environment. That strategy involves owning a low-cost S&P 500 index fund, such as the Vanguard S&P 500 ETF (VOO +0.52%).

Buffett likes Vanguard funds

Buffett earned a reputation for identifying undervalued businesses and holding on to them for decades. However, his advice for most investors is different from his own stock-picking approach. Rather than attempting to identify the next Nvidia, Buffett thinks most investors are better served by purchasing a diversified basket of America’s largest companies.

In his 2013 shareholder letter, Buffett explained how he instructed the trustees managing his wife’s inheritance to invest the funds. His recommendation was to allocate 10% to short-term government bonds and 90% to a low-cost S&P 500 index fund. Buffett specified his preferred provider, writing, “I suggest Vanguard’s.”

Interestingly, Berkshire Hathaway previously owned shares of the Vanguard S&P 500 ETF. According to 13F filings, Berkshire held 43,000 shares of the fund before liquidating the position during the fourth quarter of 2024.

Why the Vanguard S&P 500 ETF is a great long-term option

The beauty of the Vanguard S&P 500 ETF lies in its composition. Its holdings span technology, healthcare, financial services, consumer products, industrial businesses, and other industries. This diversification is important because each sector performs differently under certain economic conditions.

The S&P 500 has demonstrated resilience throughout history. During the dot-com crash, the index declined 49% between 2000 and 2002. During the 2008 financial crisis, it lost roughly 57% from its 2007 peak to its 2009 bottom. More recently, the S&P 500 endured a bear market in 2022 as the Federal Reserve raised interest rates to combat inflation.

^SPX data by YCharts

The chart depicts recessions in the grey columns. Despite a number of setbacks, the S&P 500 consistently bounced back and reached new highs. This resilience reflects a distinct characteristic of the index: Its composition changes over time. Companies that become irrelevant are eventually replaced by stronger businesses, allowing the index to evolve alongside the American economy.

VOO also offers the advantage of low costs. The fund charges an annual expense ratio of just 0.03%. This means you pay $3 a year for every $10,000 invested. Keeping expenses low allows investors to retain more of their gains, which can make a meaningful difference as your contributions compound over decades.

A stock market crash could create a generational buying opportunity

One of the biggest mistakes investors make during market downturns is assuming that cratering stock prices automatically signal poor investment opportunities. In reality, market crashes allow patient investors to buy the dip in quality businesses at substantially lower prices.

Of course, no one knows exactly when a market crash will occur or how long a recovery will take. This is why investors shouldn’t wait for a crash before buying a stake in the Vanguard S&P 500 ETF. A more prudent strategy is to use dollar-cost averaging, investing a fixed amount at regular intervals regardless of market conditions.

Investors with long time horizons and financial flexibility will come to find that market downturns offer lucrative wealth-creation opportunities rather than reasons to run for the hills. Ultimately, Buffett’s investment philosophy is rooted in a simple practice: Owning a diversified basket of blue chip American businesses over long periods is often more rewarding than attempting to predict every market fluctuation. If the stock market crashes in 2027, I see the Vanguard S&P 500 ETF as one of the smartest investments to accumulate for the next decade and beyond.