Warren Buffett’s S&P 500 guess paid off. Some specialists say it could be time to diversify

In 2007, Warren Buffett made a $1 million guess that he may outperform hedge fund managers over the course of a decade by investing in an S&P 500 index fund.

In 2017, he received.

Some particular person buyers are making related bets on the S&P 500 with their cash, whether or not or not it’s via exchange-traded funds or mutual funds.

True to its title, the S&P 500 index consists of 500 massive U.S. firms. The index is market cap-weighted, with every listed firm’s weighting primarily based on the overall worth of all its excellent shares. The index is rebalanced quarterly.

The three greatest ETFs monitor the S&P 500 index, based on Morningstar. They’re the SPDR S&P 500 ETF Belief, which trades beneath the ticker SPY; iShares Core S&P 500 ETF, with ticker IVV; and Vanguard S&P 500 ETF, which trades as VOO. Collectively, these funds make up nearly 17% of the U.S. ETF market, based on Morningstar.

In 2024, VOO has been the chief of these three funds in attracting new cash, with $71 billion in web inflows over the primary 9 months, based on Morningstar, beating the file SPY set in 2023 by $20 billion.

The S&P 500 index has continued to make headlines for new all-time highs in 2024. 12 months to this point, the index is up round 20% as of Oct. 8. Over the previous 12 months, it has climbed 33%.

That efficiency has bested some specialists’ predictions for the index heading into this yr, owing partly to a stronger U.S. economic system than had been anticipated.

“That elusive recession everybody was looking for never materialized,” mentioned Larry Adam, chief funding officer at Raymond James.

Now, the St. Petersburg, Florida-based agency is predicting a mushy touchdown for the U.S. economic system. But the run-up in shares might not be as robust.

“I think you’re going to see more muted performance — still upward, but more muted,” Adam mentioned.

Traditionally, from the beginning of October via Election Day, the market tends to be down, on common, by about 1.5% or so, he mentioned.

“The reason for that is the market doesn’t like uncertainty,” Adam mentioned.

The excellent news is the market tends to recoup these losses and transfer greater, he mentioned.

Goldman Sachs simply raised its S&P 500 index forecast for 2024 to six,000 up from 5,600 to replicate anticipated earnings progress. Tom Lee, Fundstrat World Advisors managing associate and head of analysis, additionally not too long ago instructed CNBC he is calling for a goal of 6,000 for the S&P 500 by year-end.

Investing within the S&P 500 index is a well-liked technique.

“There are reasons why it works so well that will never change,” mentioned Bryan Armour, director of passive methods analysis at Morningstar.

Among the many benefits: It is low value, it captures a big portion of the alternatives out there to lively managers and it is “hard to beat in the long run,” he mentioned.

“In general, I would say the S&P 500 is better, more well diversified than most investment strategies,” Armour mentioned.

That may will let you take a set-it-and-forget-it method and keep away from making an attempt to time the market, he mentioned.

Nevertheless, there are particular dangers that include solely investing in an S&P 500 index fund on the fairness facet of a portfolio.

“The S&P 500 has been the absolute best thing [investors] could have been doing the past seven or eight years,” mentioned Sean Williams, a licensed monetary planner and principal at Cadence Wealth Companions in Harmony, North Carolina.

“There’s a lot of people who have that mentality of, ‘Why would I do anything differently?'” he mentioned.

Typically, it isn’t a good suggestion to have every little thing in anyone place, even whether it is huge U.S. firms which have finished very properly up to now decade, Williams mentioned.

It at all times helps to have publicity to different areas, he mentioned, resembling worldwide, small- and mid-cap firms, and actual property, for instance.

Investing in an S&P 500 index technique comes with focus danger. For instance, info expertise contains 31.7% of the index, with firms together with Apple, Microsoft, Nvidia and Broadcom.

To mitigate that danger, buyers might think about transferring to a complete market portfolio just like the Vanguard Complete Inventory Market ETF, which trades beneath the ticker image VTI, which may present much less focus on the high of the portfolio, Armour mentioned.

Moreover, to get broader publicity, buyers may additionally think about shopping for a small worth ETF, an space that Morningstar analysts at present assume is “pretty significantly undervalued,” Armour mentioned.