Warren Buffett is the longtime CEO of Berkshire Hathaway, where he oversees a $295 billion portfolio of 45 publicly traded stocks and securities. His conglomerate also wholly owns an array of businesses, and has a $325 billion cash stockpile ready to be put to work when he and his lieutenants see worthwhile investing opportunities.
Since Buffett took the helm in 1965, his investment decisions have propelled Berkshire Hathaway's stock to a compound annual return of 19.8% through 2023. That crushes the average annual return of 10.2% in the S&P 500 index over the same period.
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But keep in mind that Buffett is a full-time investing professional, and he knows the average retail investor would struggle to come close to replicating his success. That's why he often recommends that small investors buy exchange-traded index funds (ETFs) instead. Berkshire currently holds stakes in two of them: The Vanguard S&P 500 ETF and the SPDR S&P 500 ETF Trust.
Both funds directly track the performance of the S&P 500 index, but the Vanguard ETF might be the better choice for you because of its low cost. And to enhance the argument in favor of this simple and easy investment choice, one Wall Street analyst predicts it could deliver a whopping 150% return by 2030.
Image source: The Motley Fool.
An Ideal ETF for investors of all skill levels
The S&P 500 is an index of 500 of the largest U.S. companies across all 11 sectors of the economy, so it's quite diversified. There are strict criteria for companies to earn their initial inclusion into the index — among them, they must have market capitalizations of at least $18 billion, and they must be profitable on a trailing 12-month basis.
Even then, entry is granted at the discretion of a special committee that adjusts the index's components once per quarter, ensuring only the highest-quality companies make the cut. The Vanguard S&P 500 ETF tracks the performance of the S&P 500 by holding the same stocks and maintaining similar weightings.
The ETF's expense ratio — the proportion of investors' funds that they pay each year to cover management costs — is just 0.03%. That makes it one of the cheapest ETFs in the world — the SPDR S&P 500 ETF Trust, for example, has an expense ratio of 0.09%. That's still low, but it's three times more expensive to own than the Vanguard fund. Higher expense ratios can negatively impact investors' returns over the long term.
Nvidia, Apple, and Microsoft are just some of the top positions
The S&P 500 is weighted by market capitalization, which means the largest companies in the index have a greater influence over its performance than the smallest. That's why the technology sector has a massive 31.7% weighting in the S&P right now — the world's three largest companies are tech players with a combined market capitalization of about $10.1 trillion.
Stock
Vanguard S&P 500 ETF Portfolio Weighting
1. Apple
7.25%
2. Microsoft
6.55%
3. Nvidia
6.11%
Data source: Vanguard. Portfolio weightings as of Sept. 30, 2024.
All three of those companies are taking leadership positions in the artificial intelligence (AI) race. Apple could soon become the largest distributor of AI software and services to consumers thanks to its new Apple Intelligence offerings. It's transforming the way iPhone, iPad, and Mac users create and consume content, and it's overhauling features like the Siri voice assistant.
Microsoft's Copilot virtual assistant is revolutionizing that enterprise in a similar way. It integrates into productivity applications like Word, Excel, and PowerPoint to accelerate workflows and save employees time. Microsoft is also a leading provider of AI services through its Azure cloud platform, where developers can access state-of-the-art compute capacity and industry-leading large language models (LLMs) to help them create their own AI software.
None of the above would be possible without Nvidia, which supplies the most powerful data center chips for developing AI. The company is now shipping its new Blackwell-architecture graphics processors (GPUs), which offer an incredible leap forward in performance and cost efficiency.
But as I mentioned earlier, the S&P 500 is widely diversified, so it isn't all about tech or AI. Berkshire Hathaway is the seventh-largest holding in the Vanguard ETF, and electric vehicle giant Tesla is in the 10th spot. Pharmaceutical giant Eli Lilly, investment bank JPMorgan Chase, and retail powerhouse Costco Wholesale sit just outside the Vanguard ETF's top 10 positions.
Potential upside of 150% by 2030
Investors should take the predictions of Wall Street analysts with a grain of salt, because they don't always get things right.
However, Tom Lee from Fundstrat Global Advisors has made some incredibly accurate calls over the last couple of years. He said the S&P 500 would rise to 4,750 in 2023 while many other analysts were more cautious. It closed that year at 4,769. Additionally, the S&P has surpassed three of his 2024 targets (5,200, 5,500, and 5,700) already, and it's knocking on the door of his most recent target of 6,000.
Earlier this year, Lee came out with a longer-term target for the S&P 500, predicting it would hit 15,000 by 2030. That implies an upside of about 150% from where it trades as of this writing. If he's right, that's about the return investors would book from the Vanguard S&P 500 ETF over the next five or six years.
Lee says a powerful demographic tailwind will drive the move, as millennials and Gen Zers enter the prime periods of their careers, between ages 30 and 50. That's when people typically earn the most money, and it's when they largely make important life decisions, like deciding to start investing.
He also believes AI will contribute to the market's upside. It has already created trillions of dollars' worth of value, and it's likely to drive an automation and productivity boom which could solve global workforce shortages in the coming years.
Lee's prediction is no sure thing. A global recession or an unexpected economic shock — another financial crisis or pandemic, for example — could delay the S&P for years on its journey toward 15,000. If AI fails to live up to the hype, that could also cause some of the world's biggest stocks (like Nvidia and Microsoft) to underperform.
Nevertheless, even if the S&P 500 doesn't reach 15,000 by 2030, history suggests it's likely to get there eventually, so investors should consider taking Buffett's advice and buy the Vanguard S&P 500 ETF anyway.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, Costco Wholesale, JPMorgan Chase, Microsoft, Nvidia, Tesla, and Vanguard S&P 500 ETF. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
