2 Best Buffett Investments to Buy for the Long Haul

Since 1945 there have been 14 bear markets — the last three averaging five months in length each — resulting in stocks losing, on average, 36% in value during each bear market. The bad news is we entered bear market territory on May 20.

The good news is, if the last 100 years are any indication, the S&P 500 Index should rebound. Two ways to invest in that rebound are through the SPDR S&P 500 ETF Trust (NYSEMKT: SPY) and Vanguard S&P 500 ETF (NYSEMKT: VOO), both of which track the index of large U.S. companies that make up the S&P 500. Buffett’s belief in the S&P 500 is so strong that it led him to instruct his estate to put 90% of his money into the index for his wife when he dies.

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The S&P 500 has time on its side

Even better news for investors is that bull markets take place 78% of the time, compared to 20% for bears, with bulls averaging a 114% increase in stock values. Dating back to the 2001 dot-com bubble burst, the S&P 500 has averaged annualized returns of 6.8%, with 14 up years compared to eight down years. In looking at the two biggest annual losses over that time — 23% in 2002 and 38% in 2008 — the following year produced a 23% gain both times.

Numbers can be confusing, but the important takeaway is that the S&P 500 has produced gains for long-term investors, and its broad focus on a full index provides diversification across sectors. That diversification helps minimize the risk that might come with investing in one industry.

A fund comparison

Although both ETFs focus on tracking the same index, there are a few minor differences. The share prices are different, although the rise of fractional share purchasing makes that largely moot. The Vanguard ETF’s expense ratio is lower at 0.03%, but the SPDR ETF’s 0.09% expense ratio is still quite low.

When all is said and done, both funds basically mirror the S&P 500, meaning an investment in each of these ETFs would’ve returned positive gains in 14 of the last 22 years. In fact, the average annualized return over the past 10 years for each ETF is 13.6%, meaning $10,000 invested 10 years ago would be worth about $35,800 today.

If the current bear market, which has already taken some stocks down 36% or more, lasts into October, it’s realistic that a 23% gain will begin soon thereafter, and during the next bull market, we could be looking at a 114% gain. Both of these top S&P 500 Index ETFs can help investors realize that level of gain.

Of course, there is always the risk that a longer-term bear market could turn into a multi-year recession, and that’s the risk every investor takes to begin with. But even though smart investors separate gambling from investing, the odds that these two ETFs will produce meaningful long-term gains are in an investor’s favor and make for great Buffett-supported investments for the long haul.

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Jeff Little has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway (B shares) and Vanguard S&P 500 ETF. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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