Buffett Believes Picking Stocks Can Be Risky: Consider Investing In These ETFs Instead

Legendary investor Warren Buffett is known for making bold investment decisions, which have allowed him to become the world's eighth richest man, with a net worth of over $136 billion. But that isn't the reason behind Buffett's popularity among retail investors – it is his cost-effective investment strategies focused on a company’s valuation rather than market noise.

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Buffett has repeatedly touted the risks involved in handpicking stocks, given the shifting market dynamics and volatile macroeconomic backdrop. Nonetheless, the Oracle of Omaha believes that investing in index funds can help mitigate the risks substantially. 

"I don't think most people are in a position to pick single stocks," Buffett said during the 2020 Berkshire Hathaway annual shareholders meeting. "A few [are], maybe, but on balance, I think people are much better off buying a cross-section of America and just forgetting about it. In my view, for most people, the best thing is to do is own the S&P 500 index fund."

As one of the biggest supporters of value investing, Buffett also believes in maintaining a routine while investing in index funds, especially during volatile times. Buffett stated in 2019 that he instructed his trustee to invest 90% of his wealth into a low-cost S&P 500 index after passing away. 

"Keep buying it through thick and thin, and especially through thin. … American business is going to do fine over time, so you know the investment universe will do very well," Buffett added. 

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iShares Core S&P 500 ETF (IVV)

Up by over 25% over the past year, the iShares Core S&P 500 ETF IVV is a low-cost ETF that tracks the S&P 500 Index, comprising 500 of the largest publicly traded companies in the U.S. The ETF has an expense ratio of just 0.03%, making it ideal for passive investments.

Furthermore, the iShares Core S&P 500 ETF pays $7.19 in dividends annually, yielding nearly 1.3% on the current price. The ETF's top three largest holdings are Microsoft Corp MSFT, Apple Inc. AAPL, and NVIDIA Corp NVDA.

Schwab U.S. Dividend Equity ETF 

The Schwab U.S. Dividend Equity ETF SCHD tracks the performance of the Dow Jones U.S. Dividend 100 Index. With a low expense ratio of just 0.06%, the ETF primarily focuses on high-quality U.S. companies with a track record of consistently paying dividends. 

The Schwab U.S. Dividend Equity ETF pays $2.83 in dividends annually, yielding an impressive 3.54% on the current price. Its top holdings include The Home Depot, Inc. HD, AbbVie Inc. ABBV, Cisco Systems, Inc. CSCO, and Chevron Corporation CVX.

This ETF offers potential for capital appreciation and a steady income stream through dividends, making it suitable for income-oriented investors. 

Fidelity ZERO Large Cap Index Fund

The Fidelity ZERO Large Cap Index is part of Fidelity’s “ZERO” line of index funds, which boast zero expense ratios. 

The ETF primarily invests in the largest companies in the U.S. by market capitalization, providing investors with cost-effective exposure to some of the biggest and most established companies in the market. Interestingly, The Fidelity ZERO Large Cap Index has gained 25.13% over the past year, surpassing the benchmark S&P 500 index's 24.4% returns. 

Its top holdings include the Magnificent Seven stocks, pharmaceutical giant Eli Lilly, and semiconductor manufacturer Broadcom Inc. The Fidelity ZERO fund is ideal for cost-conscious investors seeking a no-fee investment option.

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