Warren Buffett Sold This Vanguard ETF That He Recommends for Investors. Should You Follow His Actions or His Advice?

There are few, if any, people in the investing world who command the same attention as Warren Buffett. Since taking over Berkshire Hathaway (BRK.A 0.50%)(BRK.B 0.44%) in 1965, Buffett has transformed the conglomerate into a trillion-dollar business that has routinely outperformed the S&P 500.

Buffett and Berkshire’s success is why so many investors look to the Oracle of Omaha for investing wisdom, and luckily for many investors, he doesn’t shy away from offering it. One piece of Buffett advice he has consistently echoed is that the average investor’s best route is to simply invest consistently in an S&P 500 exchange-traded fund (ETF).

For a while, Berkshire held shares of the Vanguard S&P 500 ETF (VOO +0.20%). Yet, in the fourth quarter of 2024, it sold all of its shares. Given the juxtaposition of Berkshire’s moves versus Buffett’s advice, it’s fair to wonder: Should you follow the action or the advice?

Your investments should reflect your situation

One of the most important aspects of investing is making sure that your investments align with your personal situation. They should fit your investment style, risk tolerance, financial goals, and time horizon. That’s why you should follow Buffett’s advice about the S&P 500 and not Berkshire’s moves. It’s likely that you and a trillion-dollar corporation don’t share the same objectives or resources.

You share the same goal of making money, but generally speaking, you’re not playing the same game. Berkshire has teams of analysts and managers who spend hours researching businesses, weighing valuations, and managing risk, with countless resources at their disposal. That doesn’t mean they won’t have missteps (they absolutely will), but they’re able to navigate those missteps differently than the average investor.

Buffett’s advice about the S&P 500 focuses on making investing as simple as possible for the average investor without sacrificing gains along the way.

Why the S&P 500 is still a great choice for the average investor

VOO offers investors a three-in-one benefit: Instant diversification, access to world-class blue-chip stocks, and it’s cheap (with a 0.03% expense ratio).

Diversification-wise, VOO is more concentrated than it has historically been because of the explosion in valuations of megacap tech companies like the “Magnificent Seven” stocks: Nvidia, Microsoft, Apple, Amazon, Alphabet, Meta, and Tesla. Together, they now account for around 34% of the ETF. Yet, VOO still contains companies from every major sector in the U.S. economy:

• Information Technology (34.8% of the ETF)
• Financials (13.5%)
• Consumer Discretionary (10.5%)
• Communication Services (10.1%)
• Health Care (8.9%)
• Industrials (8.3%)
• Consumer Staples (4.9%)
• Energy (2.9%)
• Utilities (2.3%)
• Real Estate (1.9%)
• Materials (1.8%)

These aren’t your typical mom-and-pop companies, either. Becoming an S&P 500 stock means meeting strict market capitalization and financial guidelines. This doesn’t mean these companies won’t hit rough patches (every company does), but it does help with stability because they tend to have more resilient business models and resources at their disposal.

Instead of putting in the effort it takes to make a suitable portfolio with only individual stocks, one investment can give you exposure to around 500 of America’s best companies.

Let your investment grow with the U.S. economy

When you invest in an S&P 500 ETF like VOO, you’re essentially betting on the long-term growth of the U.S. economy. Buffett himself even put it directly: “For 240 years it’s been a terrible mistake to bet against America, and now is no time to start.”

Admittedly, that was around a decade ago, but the sentiment remains the same. Since VOO hit the stock market, it has produced impressive returns that have made many people a lot of money along the way.

VOO data by YCharts

Past results don’t guarantee future performance, but VOO has all the tools it needs to continue being a rewarding long-term investment. It’s an investment I’d feel comfortable being a foundational piece in my portfolio.