Warren Buffett has proven over and over again why he is considered the world’s great investor. Since taking control of Berkshire Hathaway (NYSE:BRK-A | BRK-A Price Prediction)(NYSE:BRK-B) in the mid-1960s, he has racked up tremendous wealth for investors.
Over the past 60 years, Buffett generated cumulative returns of 5,502,284% as of the end of 2024, a 19.9% compound annual growth rate (CAGR). In contrast, the S&P 500 has produced 39,504% cumulative returns, or a 10.4% CAGR. This near 2-to-1 difference over six decades is why he is called the Oracle of Omaha.
If you can’t beat ’em, join ’em
Although Buffett is a premier stock picker, he also thinks most investors should own stocks through an index fund that charges minimal fees. Essentially, it’s hard for most people to beat the market, so you may as well buy the market.
Berkshire Hathaway itself has held since 2019 positions in the SPDR S&P 500 Trust ETF (NYSEARCA:SPY) and the Vanguard S&P 500 ETF (NYSEARCA:VOO) (he recently sold them). The primary difference between them is that VOO has a significantly lower expense ratio, or 0.03%, compared to SPY’s 0.09%.
While the benchmark index is generally thought of as a proxy for the stock market as a whole, that’s not really the case. There are literally thousands of publicly traded stocks today, but the S&P 500 only tracks the 500 largest. Admittedly they are some of the most successful and profitable businesses around, giants like Microsoft (NASDAQ:MSFT), Walmart (NYSE:WMT), and JPMorgan Chase (NYSE:JPM), but focusing solely on the biggest ignores the opportunities available in mid-cap and small-call stocks, stocks that represent the real growth engine of the economy.
That sets up a debate on whether if you want to “buy the market” you should buy the lowest cost S&P 500 ETF, VOO, or one that takes in all the stocks that are available, such as the Vanguard Total Stock Market ETF (NYSEARCA:VTI). Particularly amid the market chaos we’re seeing these days, let’s see whether VOO or VTI is the better investment.
The case for VOO
In volatile markets, the Vanguard S&P 500 ETF is a top investment choice due to its broad diversification, low cost, and alignment with the market’s long-term growth trajectory. It spans all major sectors, including technology, healthcare, and consumer goods, mitigating risks tied to sector-specific downturns. This diversity cushions against much of the volatility we’re seeing, as no single industry dominates excessively, unlike narrower ETFs. Historically, the S&P 500 has weathered economic storms, including recessions, inflation, and geopolitical crises, that reflect its capacity to rebound.
Unlike active funds chasing trends, VOO’s passive strategy avoids costly missteps, offering predictability. Its liquidity, with high trading volumes, ensures ease of access even in turbulent conditions. VOO also balances growth and stability, capturing upside potential from innovative firms while anchoring portfolios with established giants.
For investors seeking a fortress for protection, VOO’s proven track record, cost efficiency, and comprehensive exposure make the ETF a cornerstone for enduring market uncertainty with confidence.
The case for VTI
The Vanguard Total Stock Market ETF also stands out as an exceptional investment due to its unparalleled diversification, cost efficiency, and long-term resilience. Tracking the CRSP US Total Market Index, VTI encompasses over 3,600 U.S. stocks, spanning large-, mid-, small-, and micro-cap companies across every sector.
This extensive coverage dilutes the impact of any single stock or industry downturn, providing a buffer against market swings. VTI’s inclusion of smaller firms also offers growth potential while anchoring with established giants, which balances risk and reward. And with an expense ratio of just 0.03%, VTI is also a low-cost investment.
Its passive strategy avoids the pitfalls of active management, which often fails in turbulent times. High liquidity, driven by robust trading volumes, guarantees flexibility for entries or exits, even in choppy markets.
Historically, the U.S. total market has delivered around 9% to 10% annualized returns over decades,quickly recovering from crashes such as those in 2008 and 2020. VTI’s comprehensive exposure captures this resilience, making it ideal for weathering uncertainty. For investors seeking stability without sacrificing growth, VTI’s broad reach, minimal costs, and proven durability make it a foundational investment for navigating today’s volatility.
The verdict
Considering the whipsaw reaction of the stock market in just the past two weeks, I’d argue VOO edges out VTI as the best investment today because of its focused stability.
While VTI’s breadth offers broader diversification, including volatile small-caps, VOO’s 500 large-cap firms provide a tighter, more resilient core that can better weather market storms. Its concentration on blue-chip companies, like Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN), ensures greater predictability and lower risk during turbulence.
VTI’s small-cap exposure adds growth potential, but increases volatility, which can unsettle more conservative investors. For those prioritizing a proven, steady investment in uncertain times, VOO’s streamlined approach makes it the superior choice over VTI.
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