Warren Buffett has long offered one simple piece of investing advice to ordinary investors — buy an S&P 500 index fund and hold it for the long term.
But investors following the Oracle of Omaha’s advice through the Vanguard S&P 500 ETF (NYSE:VOO) are getting something Buffett’s famous recommendation may not immediately suggest — significant exposure to the market’s largest technology and AI beneficiaries:
- Nvidia Corp (NASDAQ:NVDA) accounts for about 8.1% of VOO
- Apple, Inc (NASDAQ:AAPL) at 7%
- Microsoft Corp (NASDAQ:MSFT) at 5.7%
- Amazon.com, Inc (NASDAQ:AMZN) at 3.8%, and
- Alphabet, Inc (NASDAQ:GOOGL) (NASDAQ:GOOG) at 3% and 2.4%, respectively.
Together, those five companies represent roughly 30.4% of the ETF.
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That means a $10,000 investment in VOO would have about $3,400 exposed to these five stocks. The remaining $6,600 is spread across the rest. VOO tracks the market-cap-weighted S&P 500, charges an expense ratio of just 0.03% and holds roughly 500 companies.
Broadcom, Inc (NASDAQ:AVGO), Meta Platforms, Inc (NASDAQ:META), Micron Technology Inc (NASDAQ:MU) and Tesla, Inc (NASDAQ:TSLA) add another roughly 7.5%, taking the combined exposure of the top nine holdings to nearly 38%.
Buffett’s endorsement of the S&P 500 remains rooted in diversification, low costs and the difficulty of consistently beating the benchmark.
Buffett’s Advice Meets Today’s S&P 500
Buffett’s advice to most people is “own the S&P 500 index fund.” Historically, that strategy has delivered strong results. The S&P 500 has generated a 10% annualized return since its launch in 1957.
But the index’s composition has changed dramatically as mega-cap technology companies have grown.
For investors who want Buffett’s broad-market philosophy with less concentration in the biggest companies, the Invesco S&P 500 Equal Weight ETF (NYSE:RSP) offers an interesting alternative. Rather than weighting companies according to market capitalization, RSP gives each S&P 500 constituent roughly equal exposure and therefore reduces the influence of Nvidia, Apple and Microsoft.
The choice ultimately comes down to what investors mean by following Buffett’s advice.
VOO offers Buffett’s preferred S&P 500 strategy at an exceptionally low cost — but investors should recognize that owning the index today also means owning a substantial slice of the AI trade.
Photo: Shutterstock
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