This Warren Buffett ETF has turned $10,000 into over $67,000 since 2010

Following Warren Buffett’s lead has paid off for long-term investors. The long term does not have to translate into several decades. And you don’t even have to buy the legendary investor’s favorite individual stocks to make a lot of money.

A Buffett exchange-traded fund (ETF) has turned $10,000 into more than $67,000 since 2010. That’s significantly more than the $56,000 you’d have if you invested $10,000 in Buffett’s favorite stocks, Berkshire Hathawayin the same period.

Buffett’s favorite fund

Which ETF delivered such a big gain? The Vanguard S&P 500 ETF (VOO 0.92%).

As the name suggests, this Vanguard ETF holds shares in S&P 500 (^GSPC 0.90%)an index representing the 500 largest companies in the US. But that doesn’t mean the Vanguard S&P 500 ETF portfolio includes 500 stocks. It actually owns 503 stocks, as some members of the S&P 500 have more than one share class.

The Vanguard S&P 500 ETF is almost certainly Buffett’s favorite fund. First, Berkshire Hathaway only holds positions in two ETFs (the other is SPDR S&P 500 ETF Trust). The conglomerate’s stake in the Vanguard ETF is, however, slightly larger than its stake in the SPDR ETF.

Buffett also mentioned Vanguard by name in his 2013 letter to Berkshire Hathaway shareholders. He revealed that his will specifies that 90% of the cash he inherited from his family be invested in a “very low-cost S&P 500 index fund.” He added, “I suggest Vanguard.”

Vanguard S&P 500 ETF is a low-cost fund. The annual expense ratio is only 0.03%. The average expense ratio of similar funds based on data from Morningstar is 0.78%.

A 6.7x gain over 14 years

Vanguard launched this ETF on September 7, 2010. If you had invested $10,000 in the fund on that date and never sold any shares, you would have about $67,250 today. This translates to a compound annual growth rate of nearly 14.6%.

VOO Total Return Level data by YCharts

How did the Vanguard S&P 500 ETF deliver such impressive returns? Low interest rates for much of the past 14 years have helped enormously. S&P 500 companies were able to borrow money cheaply to finance growth.

Technology trends, including the rapid growth of cloud service providers and the adoption of artificial intelligence (AI), also contributed to the ETF’s strong gains. Today, companies in the information technology sector represent 31% of the S&P 500 index.

However, we cannot overlook the compounding power of dividends. Without reinvested dividends, $10,000 invested in the Vanguard S&P 500 ETF in 2010 would now be worth about $51,620. While this is still a windfall, it is well below the amount with dividends included.

Should You Buy the Vanguard S&P 500 ETF?

There is no guarantee that the Vanguard S&P 500 ETF will provide the level of performance in the future that it has over the past 14 years. The S&P 500 is nearing an all-time high, with stocks in the index trading at an average price-to-earnings ratio of 27.2.

With that in mind, should you buy the Vanguard S&P 500 ETF? I think the answer for many investors is still a resounding yes.

Dimensional Fund Advisors looked at S&P 500 data going back to 1926. It found that average annual returns in the year after the index hit a record high were nearly 14% after one year and more than 10% over the next five years. The moral of the story is don’t let all-time highs scare you.

In the letter to Berkshire shareholders mentioned earlier, Buffett wrote: “American business has done wonderfully over time and will continue to do so (though most likely in unforeseeable fits and starts).” He was – and is – right. The Vanguard S&P 500 ETF offers an easy way to own a broad basket of America’s most successful businesses. To borrow Buffett’s words, it should perform wonderfully over time.