Why Warren Buffett remains a big fan of ETFs

By Vanguard

ETFs

The Oracle of Omaha says low-cost index funds are still best for most investors.

As one of the world’s most successful investors, with an estimated net worth of around US$150 billion, Warren Buffett is regularly referred to as the “Oracle of Omaha” because he often sees things that other investors don’t.

The chairman of U.S. investment company Berkshire Hathaway, Buffett is best known for having a value investing approach by buying large stakes in undervalued companies.

He told shareholders in his just-released 2025 annual letter that the vast majority of their money remains in equities, primarily the shares of American companies.

Yet, over many years, Buffett has also been a major advocate for, and an investor in, broadly diversified, index-tracking exchange traded funds (ETFs).

On first glance, that would seem to contradict his active investment approach. But there are a range of reasons the veteran investor has been investing in ETFs for decades.

In his 2013 annual letter to Berkshire Hathaway shareholders, Buffett said the following:

“A low-cost index fund is the most sensible equity investment for the great majority of investors. My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors—whether pension funds, institutions, or individuals—who employ high-fee managers.”

For individual investors, ETFs offer a straightforward and effective way to build a robust investment portfolio.

Here’s a closer look at some of the main reasons why experienced professional investors such as Buffett, and a growing number of Australian investors, are gravitating towards ETF investments.

Diversification

One of the primary reasons investors favour ETFs is their ability to provide instant diversification. By investing in an ETF, an individual can gain exposure to a broad range of assets, such as stocks, bonds, or commodities, with a single purchase. This diversification helps to reduce the risk associated with investing in individual stocks, which can be highly volatile.

Low costs

ETFs are known for their low expense ratios, which can significantly reduce the overall cost of investing. Buffett has long emphasised the importance of minimising fees and expenses, as high costs can erode long-term returns. ETFs, especially those that track broad market indices, offer a cost-effective way to build a diversified portfolio.

Simplicity

Buffett is a strong advocate of simplicity in investing. He believes that the average investor should not try to outsmart the market but should instead focus on a straightforward, long-term strategy. ETFs, particularly index ETFs, align with this philosophy by providing a simple and effective way to invest in the market.

Passive management

Buffett has often criticised active management, arguing that most actively managed funds fail to outperform the market after accounting for fees. ETFs, especially those that track indices, are passively managed, meaning they aim to replicate the performance of a specific index. This passive approach is more likely to provide consistent returns over the long term.

Accessibility

ETFs are highly accessible, trading on stock exchanges just like individual stocks. This means that investors can buy and sell ETFs throughout the trading day, providing liquidity and flexibility. This accessibility makes ETFs an attractive option for both new and experienced investors.

Long-term performance

Buffett is a long-term investor, and he believes that the best way to build wealth is to invest in high-quality assets and hold them for the long term. ETFs, particularly those that track broad market indices, have historically provided strong long-term returns. By investing in ETFs, individuals can benefit from the long-term growth of the market without the need to pick individual stocks.

Automatic reinvestment

Many ETFs offer automatic dividend reinvestment, which can enhance long-term returns through the power of compounding. This feature is particularly beneficial for long-term investors who are focused on building wealth over time.

Transparency

ETFs are highly transparent, with holdings and performance data readily available. This transparency allows investors to understand exactly what they are investing in and how their investments are performing. Buffett values transparency and believes that investors should have a clear understanding of their investments.

Buffett’s preference for ETFs is rooted in their ability to provide diversification, low costs, simplicity, and long-term performance.

For individual investors, ETFs offer a straightforward and effective way to build a robust investment portfolio.

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^{Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) (“Vanguard”) is the issuer of the Vanguard® Australian ETFs. Vanguard ETFs will only be issued to Authorised Participants. That is, persons who have entered into an Authorised Participant Agreement with Vanguard (“Eligible Investors”). Retail investors can transact in Vanguard ETFs through Vanguard Personal Investor, a stockbroker or financial adviser on the secondary market.}

^{We have not taken your objectives, financial situation or needs into account when preparing this publication so it may not be applicable to the particular situation you are considering. You should consider your objectives, financial situation or needs, and the disclosure documents for Vanguard’s products before making any investment decision. Before you make any financial decision regarding Vanguard’s products you should seek professional advice from a suitably qualified adviser. The Target Market Determination (TMD) for Vanguard’s ETFs include a description of who the ETF is appropriate for. You can access our IDPS Guide, PDSs Prospectus and TMD at vanguard.com.au or by calling 1300 655 101.}