The ETFs Buffett Will 100% Buy … Maybe

by on February 27, 2014 | Updated March 6, 2014

The investment world has been enamoured with Warren Buffett for decades now. Ever since and even before he made a name for himself with an unforgettable, crude and unbelievably analogous quote in October of 1974 when asked by Forbes magazine about his feeling towards the market; Buffett famously quipped:

“(I feel) Like an oversexed guy in a whorehouse. Now is the time to invest and get rich.”

Well, Buffett has backed up his Midwestern, down to earth persona with some seriously impressive performance. For full details, check out The Complete History of Warren Buffett.

In an excerpt from his yet to be publicly released 2013 Berkshire Hathaway shareholder letter published recently in Fortune, Buffett penned a subsection centred on how two real estate investments he made in the 1980s and ’90s exemplify the qualities to which “intelligent investors” must strive. It is definitely worth a read, as his annual letter is each year.

This section jumped out at me – Buffett writes (author’s emphasis):

“My money, I should add, is where my mouth is: What I advise here is essentially identical to certain instructions I’ve laid out in my will. One bequest provides that cash will be delivered to a trustee for my wife’s benefit. (I have to use cash for individual bequests, because all of my Berkshire Hathaway (BRKA) shares will be fully distributed to certain philanthropic organizations over the 10 years following the closing of my estate.) My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s. (VFINX)) I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions, or individuals – who employ high-fee managers.”

Our question to Mr. Buffett is why he wouldn’t update his will and instruct his estate to use one of three proxies for this mutual fund (currently sporting a 0.18% expense ratio), like these:

Ticker ETF Issuer Expense Ratio
SPY SPDR S&P 500 State Street SPDR 0.09%
IVV Core S&P 500 ETF iShares 0.07%
VOO S&P 500 ETF Vanguard 0.05%
While Mr. Buffett is likely the most well respected investor on the planet, with the corresponding track record to corroborate that perception, we respectfully disagree with his chosen security to gain low cost exposure to the S&P 500 and suggest the three ETFs above tracking the widely followed index.