Staff Reporter
Warren Buffett, the long-time CEO of Berkshire Hathaway(NYSE:BRK-A)(NYSE:BRK-B), is set to step down at the end of this year, concluding a remarkable tenure that began in 1965.
During his leadership, a $1,000 investment in Berkshire stock would have grown to an astounding $44.7 million by the end of 2024, largely due to his exceptional stock-picking skills.
Recognizing that average investors often lack the same expertise, Buffett advocates for low-cost exchange-traded funds (ETFs), particularly those that track the S&P 500 index. Among these, the Vanguard S&P 500 ETF (VOO) stands out as an affordable option he has previously endorsed.
Tom Lee, a prominent analyst at Fundstrat Global Advisors known for his accurate market predictions, suggests that the S&P 500 could rise by 156% by 2030.
A Strong Choice for All Investors
The S&P 500 index is well-diversified, encompassing 500 companies across 11 sectors. Its stringent entry criteria ensure that only top-performing companies are included. Each must have a market cap of at least $20.5 billion and show profitability over the last four quarters, with final selections made by a quarterly committee.
Investing in the Vanguard S&P 500 ETF is one of the most cost-effective ways to track this index, featuring an exceptionally low expense ratio of just 0.03%. This means that a $10,000 investment incurs only $3 in fees annually, compared to the industry average of 0.75%.
While the S&P 500 offers diversification, it is weighted by market capitalization, meaning larger companies have a more significant impact on overall performance.
The top ten holdings in the Vanguard ETF make up 35.5% of its total value, with major players like Apple, Microsoft, and Nvidia leading the way. These tech giants are at the forefront of the booming artificial intelligence (AI) sector, which Bloomberg estimates could become a $1.3 trillion market by 2032.
Goldman Sachs predicts that AI could add $7 trillion to the global economy by 2033, while PwC estimates a contribution of $15.7 trillion by 2030.
Cathie Wood’s ARK Investment Management believes AI could enhance labor productivity by $200 trillion over the same period. Regardless of which prediction holds true, AI is expected to significantly drive S&P 500 returns, contributing to Lee’s bullish outlook.
Tom Lee’s Forecast
While investors should be cautious about relying solely on one analyst’s forecasts, Tom Lee has built a reputation for precise S&P 500 predictions. He accurately forecasted a rise to 4,750 in 2023, surpassing most analysts’ expectations. His projections for 2024 also proved largely correct, with the index hitting several of his targets.
Looking ahead, Lee predicts that the S&P 500 could reach 15,000 by 2030, suggesting that investors in the Vanguard S&P 500 ETF could see a 156% return.
He believes massive investments in AI and automation will drive growth, particularly as millennials and Gen Z enter their peak earning years, potentially flooding the market with new investment.
Historical trends indicate that the S&P 500 tends to reach new highs over time, so achieving 15,000 seems plausible, though economic conditions and unforeseen events could influence the timeline.
In any case, the index is expected to be significantly higher in the future, making it an attractive option for both novice and seasoned investors.
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