Follow Warren Buffett’s Advice and Invest in These 2 TSX ETFs

Warren Buffett: How can one follow and replicate the investing habits of the Oracle of Omaha? Here’s a start.

| More on:

The legendary investor Warren Buffett has been a strong admirer of long-term investing. Many investors of our generation have notably benefitted by reading and listening to his investing philosophies. He once stated in a letter to shareholders, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

That might sound intimidating to first-time investors. So, how can one follow and replicate the investing habits of the Oracle of Omaha?

It is really not that difficult.

Warren Buffett and his investing values

Buffett has always asserted that you need to invest in businesses that you understand. He spends a lot of time every day reading and analyzing financial reports of the companies. But novice investors are not required to undergo the tedious task. Also, they often do not have the expertise to understand the financials of every company.

Warren Buffett has a solution for these kinds of investors: index funds.

An index fund is a basket of stocks that gives exposure to the broader market. Instead of picking individual top-performing stocks, index funds give a combined, diversified representation. They provide safety and generate enormous wealth over time.

Canadian investors: Top TSX ETFs to buy

Warren Buffett’s Berkshire Hathaway has also invested in the S&P 500 index funds for a long. If Canadian investors want to replicate the S&P 500 returns, they can consider iShares Core S&P 500 Index ETF (TSX:XSP) (CAD hedged). One can get exposure to top companies like Apple, Facebook, Amazon, and many others with this index fund.

Many investors shun index funds because they are slow-moving and have perceived subdued growth. However, XSP has returned more than 250% in the last decade, including dividends. That’s a decent return compared to many dividend aristocrats.

The thesis behind betting on index funds is to have an exposure to growing economies that offer handsome gains along with safety. That’s why Warren Buffett recommends them to everyday investors.

If you want to bet on the Canadian economy at large, consider iShares S&P/TSX 60 Index ETF (TSX:XIU). It offers long-term capital gain with exposure to the country’s top 60 stocks.

The fund’s top three holdings include Royal Bank of Canada, Shopify, and Toronto-Dominion Bank, which account for 7.8%, 6.8%, and 6.4% weight in the fund, respectively. It has returned almost 100% in the last 10 years, including dividends.

The Foolish takeaway

As investors bet on several stocks at once with index funds, the stock-specific risk gets diversified. So, even if one sector or stock faces near-term headwinds, other stocks in the fund compensate and cover up for the losses.

Certainly, index funds are advantageous in many aspects. However, don’t just go all in. Warren Buffett recommends investing a small amount at regular intervals in these index funds. Unarguably, it will eliminate the timing risk and outperform most of the investment professionals in the long term.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Fool contributor Vineet Kulkarni has no position in any of the stocks mentioned. David Gardner owns shares of Amazon, Apple, and Facebook. Tom Gardner owns shares of Facebook and Shopify. The Motley Fool owns shares of and recommends Amazon, Apple, Berkshire Hathaway (B shares), Facebook, Shopify, and Shopify and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), short January 2022 $1940 calls on Amazon, long January 2022 $1920 calls on Amazon, and short December 2020 $210 calls on Berkshire Hathaway (B shares).

More on Dividend Stocks

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Where to Invest Your $7,000 TFSA Contribution

The TFSA is attractive for investors who want to generate tax-free passive income.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

TFSA Investors: 3 Dividend Stocks Worth Holding Forever

These TSX stocks have the potential to grow their dividends over the next decade, making them top investments for TFSA…

Read more »

Tractor spraying a field of wheat
Dividend Stocks

Is Nutrien Stock a Buy for its Dividend Yield?

Nutrien is down more than 50% form the 2022 highs. Is NTR stock now oversold?

Read more »

golden sunset in crude oil refinery with pipeline system
Dividend Stocks

Best Stock to Buy Right Now: Enbridge vs TC Energy?

Enbridge and TC Energy rebounded nicely over the past year. Are more gains on the way?

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

2 Utility Stocks That Are Smart Buys for Canadians in November

Are you looking for some of the smart buys to consider in November? These utility stocks offer growth and a…

Read more »

View of high rise corporate buildings in the financial district of Toronto, Canada
Dividend Stocks

Is Power Corporation of Canada Stock a Buy for its 5% Dividend Yield?

Is Power Corporation of Canada (TSX:POW) stock's 5% dividend yield worth it? Discover why this resilient stock could be a…

Read more »

hand stacks coins
Dividend Stocks

Here Are My Top 3 Dividend Stocks to Buy Now

These three dividend stocks are ideal for strengthening your portfolio and earning a stable passive income.

Read more »

man touches brain to show a good idea
Dividend Stocks

3 No-Brainer REIT Stocks to Buy Right Now for Less Than $200

REITs have long been touted as some of the best dividend stocks out there if you want recurring, strong income.…

Read more »