Warren Buffett heads up Berkshire Hathaway, a massive holding company with a robust $296 billion portfolio that includes publicly traded stocks and securities. Not stopping there, they also handle a hefty $325 billion cash reserve, ready to be utilized whenever Buffett and his crew spot a potential winner.
Under Buffett’s leadership since 1965, Berkshire’s stock has seen a stunning compound annual growth rate of 19.8%. This performance towers over the S&P 500’s average yearly rise of 10.4% during the same timeframe. Buffett, being a seasoned investor, understands that the average retail investor might find it tough to mirror such success. Hence, his regular advice favors exchange-traded funds (ETFs) over trying to cherry-pick individual stocks. Interestingly, Berkshire itself invests in a couple of these ETFs: The Vanguard S&P 500 ETF (VOO) and the SPDR S&P 500 ETF Trust (SPY).
These funds both closely follow the S&P 500’s performance. A recent report by a leading Wall Street analyst suggests that investors who hop onto either of these funds today might be looking at an impressive 153% gain by 2030.
### S&P 500 Index Funds: A Wise Choice for Investors
The S&P 500 stands out as the most diversified U.S. stock market index, housing 500 companies across 11 distinct sectors. Getting into this exclusive club isn’t easy; companies need a market cap of at least $20.5 billion and must show profitability over the last 12 months. Additionally, a special committee meets quarterly to decide which companies make the cut, ensuring that only the cream of the crop makes it in.
The Vanguard S&P 500 ETF and the SPDR S&P 500 ETF Trust both mirror the S&P 500 by holding similar stocks and maintaining comparable weightings. The main variation between them is their expense ratios, which outline the portion of each fund deducted annually to cover management fees. The Vanguard ETF has an exceptionally low expense ratio of 0.03%, whereas the SPDR incurs a slightly higher fee of 0.0945%. Over the long haul, this difference might seem small, but if you’re putting up big money, opting for Vanguard could save a tidy sum on fees.
### Big Tech’s Dominance in the S&P 500
Tech companies hold a large slice of the S&P 500 pie, with the information technology sector accounting for 32.9% of the index. This is because the S&P 500 is weighted by market capitalization, meaning the giants wield more influence. Three powerhouses, Apple, Nvidia, and Microsoft, each boast market caps exceeding $3 trillion and occupy the top spots in the S&P 500, all being big players in the tech arena.
While the index isn’t solely about tech—with Berkshire Hathaway ranking among the top 10—it also includes companies like JPMorgan Chase, Visa, Costco, Walmart, and Coca-Cola, showcasing its diverse makeup.
### Eyeing a 153% Upside by 2030
When it comes to Wall Street forecasts, they’re not always spot on, so they shouldn’t be your only guiding light. However, Tom Lee from Fundstrat Global Advisors has made some noteworthy predictions about the S&P 500 recently, giving us reason to take note. He accurately forecasted the index reaching 4,750 in 2023 when many advised caution, and indeed, it closed at 4,769. He also set multiple successful targets for 2024, although he overreached slightly by estimating a year-end high of 6,300.
Looking ahead, Lee envisions the S&P 500 climbing to 15,000 by 2030, pointing to a potential increase of 153% from today’s levels. If Lee’s projection holds true, both the Vanguard S&P 500 ETF and the SPDR S&P 500 ETF Trust could deliver these returns. He attributes this possible rise to advancements in artificial intelligence (AI), predicting substantial investments into tech areas like machine learning and automation, earmarked as solutions for global workforce shortages.
Lee also highlights the looming influence of millennials and Gen Zers as they enter the prime of their careers, typically an age range where income peaks and significant investing decisions take place. This surge could further energize the S&P 500.
However, every forecast carries uncertainties. AI might not fulfill its potential, which could deflate valuations for companies like Nvidia and Microsoft, thereby affecting the S&P 500. A severe economic recession or another global pandemic could also throw a wrench in the works, possibly pushing Lee’s optimistic timeline further.
Still, historical data leans towards the S&P 500 hitting 15,000 someday. Even if it takes longer than 2030, following Buffett’s advice now—investing in the Vanguard S&P 500 ETF or SPDR S&P 500 ETF Trust—seems unlikely to disappoint in the long term.
