Warren Buffett, the CEO of Berkshire Hathaway, advises investors to periodically purchase shares of an index fund that tracks the S&P 500. He recommends investing $350 per month in an S&P 500 index fund, such as the Vanguard S&P 500 ETF, which provides exposure to hundreds of U.S. companies, including Microsoft, Apple, Nvidia, Alphabet, and Amazon. These companies are well positioned to monetize artificial intelligence (AI) and are expected to benefit from its growth [47fa77d0].
The Vanguard S&P 500 ETF is a low-cost and convenient way to build wealth. With an expense ratio of just 0.03%, it offers a cheap and easy way for investors to participate in the growth of the U.S. economy. The ETF tracks the performance of the S&P 500, which includes 500 large and profitable companies in the U.S. The S&P 500 has a long history of delivering solid returns, making it an attractive investment option for long-term wealth accumulation [47fa77d0].
In addition to the Vanguard S&P 500 ETF, investors may also consider the Vanguard Information Technology ETF, which has delivered impressive returns over the last two decades. The Vanguard Information Technology ETF returned 1,310% over the last 20 years, compounding at 14.1% annually, compared to the S&P 500's 599% return. Investing $100 monthly in the Vanguard Information Technology ETF would be worth about $132,000 today. The information technology sector, which includes companies involved in AI, has outperformed the S&P 500 over the last 10 and 20 years. Spending on AI is expected to increase at 37% annually through 2030. The Vanguard Information Technology ETF tracks 313 technology stocks and has a low expense ratio of 0.1%. However, investors should treat it as part of a diversified portfolio and keep their position relatively small [1d8e5289] [47fa77d0].
Warren Buffett also recommends investing in Berkshire Hathaway (BRK.B) as a way to invest in individual stocks. Berkshire Hathaway is a holding company that owns a diverse range of businesses and is considered one of the largest and most diversified companies in the world. BRK.B stocks have seen significant growth in value over the past decade. Buffett emphasizes the importance of longevity and building institutions that can last [0f68a56c].
When considering investing in the S&P 500, investors may also want to evaluate the choice between the market-cap-weighted S&P 500 index and the equal weight S&P 500 index. The market-cap-weighted index gives more weight to companies with larger market caps, while the equal weight index gives equal weight to all 500 companies. The market-cap-weighted index reflects the performance of larger companies, which have been successful and influential in shaping the future. On the other hand, the equal weight index offers balanced exposure to all companies and sectors, reducing the exposure to any single company or sector. However, it may not accurately reflect the market as smaller companies have an equal influence on the index as larger ones. The decision between the two indexes ultimately depends on individual investment philosophy and risk tolerance [2d5faa42].
In addition to the Vanguard S&P 500 ETF and Vanguard Information Technology ETF, investors interested in artificial intelligence (AI) can consider AI-focused ETFs. The Roundhill Generative AI and Technology ETF (CHAT) and the iShares Expanded Tech Sector ETF (IGM) are two AI ETFs that provide exposure to AI stocks. The Roundhill ETF holds stakes in 53 AI-related companies, including Nvidia, Advanced Micro Devices, Alphabet, and Amazon. The iShares ETF is more diversified, with 278 stocks, including Nvidia, Advanced Micro Devices, Apple, and Meta Platforms. The Roundhill ETF has delivered a return of 40% since its establishment in May 2023, while the iShares ETF has a compound annual return of 10.6% since 2001. Both ETFs offer long-term exposure to the AI boom, but investors should consider the potential risks if AI fails to live up to the hype. It's important to note that these AI-focused ETFs have expense ratios of 0.75% and 0.41% for Roundhill and iShares, respectively [189e2c42].
Broad-based index funds like the Vanguard Total Stock Market Index Fund ETF may not be the best choices for investors in the age of AI. AI has the potential to disrupt every economic sector, and companies that fail to adapt may be left behind. Legacy industries such as retail, insurance, and fossil fuels may struggle to keep pace with the rapid changes brought about by AI. Investors may need to reconsider the benefits of broad diversification and focus on companies and sectors that are built to thrive in the age of AI. Tech-oriented ETFs like the Invesco QQQ Trust, Vanguard Growth ETF, and Vanguard Information Technology ETF would be ideal ways to play this trend. These funds have heavier tilts toward technology companies at the forefront of AI [d7f3f329].
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is also a member of The Motley Fool's board of directors [d7f3f329].
According to The Motley Fool, the Vanguard Growth Index Fund ETF Shares should continue to rise in response to AI's projected multitrillion-dollar economic impact. Despite the fundamentally unattractive valuation of top AI stocks and the deteriorating financial situation for many Americans, it's still probably a bad idea to back off buying the Vanguard Growth Index Fund. Analysts have made bold predictions about AI's economic impact, estimating that it could add over $15 trillion to the global economy by 2030. The Vanguard Growth Index Fund, with its significant exposure to AI-focused companies, is a low-cost, straightforward way to gain exposure to this transformative theme [c4cdbb15].