5 ETFs Warren Buffett Would Consider Now — Simple Picks for Beginners

Warren Buffett is one of the most successful investors in history, and people around the world always want to know what he is buying. But Buffett himself will tell you that most investors don’t have his level of knowledge and access are generally better off owning low-cost index funds.

There’s a lot behind that statement, but the most practical question for investors is, what types of ETFs would Buffett consider for beginners right now? Here’s a speculative list, based on Buffett’s overall investment philosophy.

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Vanguard S&P 500 ETF (VOO)

A low-cost S&P 500 index fund, like this one from Vanguard, is an investment that Buffett specifically recommended in writing.

In his2013 letter to Berkshire Hathaway shareholders, he told the world what instructions he had given for his own estate after he dies: 90% of the money is to go into a low-cost S&P 500 index fund, with the remaining 10% in short-term government bonds. He’s repeated the advice in multiple letters since, calling stock-picking a game where “neither he nor his helpers” can reliably win.

Vanguard’s VOO charges an extremely low 0.03% annually, and its format is exactly the one that Buffett endorses. 

Vanguard Value ETF (VTV)

Buffett traces his entire investing philosophy back to Benjamin Graham’s style of value investing. The concept behind value investing is essentially to buy quality businesses for less than they’re worth while resisting the temptation to buy the hot stocks everyone else is chasing.

Vanguard’s VTV invests only in established, reasonably priced companies rather than high-flying growth names trading on hype and emotion. Funds like VTV follow the same value investing tradition that Buffett first learned, but its managers do all the research and pick the individual stocks on your behalf. 

Schwab U.S. Dividend Equity ETF (SCHD)

Berkshire’s own portfolio is full of high-quality, dividend-paying stocks, including household names like Coca-Cola, American Express and Chevron. These types of companies pay actual cash to investors while still offering the potential for capital appreciation.

The best dividend-paying companies tend to raise their payout every year and maintain their dividends no matter what is going on in the market or economy. SCHD screens specifically for companies with strong balance sheets and a track record of sustainable dividends, which is basically the very model of what Buffett looks for when he buys a stock. 

Financial Select Sector SPDR Fund (XLF)

Buffett has long been fond of investing in banks and payment companies, and it shows in Berkshire Hathaway’s portfolio. American Express and Bank of America are two of the company’s five largest holdings today, and it has recently been building a position in insurer Chubb, as well. XLF gives beginners exposure to banks, insurers, payment networks, and other financial companies without betting big on a single stock.

Consumer Staples Select Sector SPDR Fund (XLP)

Coca-Cola has been a Berkshire holding since 1988 for a reason. People keep buying consumer staples like food, beverages and household products even when they’re cutting back on other items.

XLP is the ETF you want to own if you want broad exposure to this defensive industry, as it’s dominated by names like Walmart, Costco, Procter & Gamble and yes, even Coca-Cola, which is currently the fourth-largest holding in the fund. The stocks in this ETF represent a lower-drama corner of the market that tends to hold up when the overall market gets nervous. 

The Bottom Line

None of these ETFs are particularly exciting, but that’s the cornerstone of the Warren Buffett investment philosophy. The “Oracle of Omaha” has often said that his favorite holding period of a stock is “forever,” and these are the types of industries that can play a role in a long-term portfolio. As a beginner, they’re about as close as you can get to investing like Buffett without pretending to have his decades of experience or his research team behind them. 

There’s one important caveat to this analysis. The only type of low-cost index fund Buffett has specifically recommended in writing is an S&P 500 index fund. Sector funds like XLF and XLP, while investing in industries that Buffett tends to favor, are not as diversified and carry additional risks.

This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.

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