The most famous investor is retiring, but his investment advice is likely to carry weight for years to come. Over the weekend, Warren Buffett announced he was retiring as CEO of Berkshire Hathaway. At the age of 94, he stepped down, and Greg Abel took the reins of the conglomerate.
While Buffett was known for buying attractively valued businesses, he did not recommend investors follow in his footsteps. He famously made a $1 million bet that the S&P 500 index fund would outperform a collection of hedge funds over the next decade. He won that bet.
Since then, he has repeatedly advocated that investors put money in the large-cap U.S. index fund rather than try to outperform. As a long-time analyst of ETFs and mutual funds, the data certainly confirms his assessment.
Outperforming the S&P 500 Is Hard
According to the SPIVA Scorecard, the S&P 500 Index has outperformed the universe of actively managed large-cap mutual funds every calendar year since 2010. In 2024, only 35% of large-cap funds delivered above-average returns. The worst years in recent history were in 2014 and 2021, when less than 15% of the mutual funds outperformed the benchmark.
Why do many funds underperform? In a word: fees. The average actively managed mutual fund charges approximately 1.0%. The index is, of course, free, and the ETFs replicating the index are nearly free.
The SPDR Portfolio S&P 500 ETF (SPLG) has more than $60 billion in assets. SPLG has a fee of 0.02%. Meanwhile the Vanguard S&P 500 ETF (VOO) and the iShares Core S&P 500 ETF (IVV), which manage $610 billion and $560 billion, respectively, charge 0.03%.
Record 2024 for ETFs
Those low fees make it easier for an advisor seeking large-cap exposure for their clients to match expectations. The ETF industry has swelled in size to over $10 trillion in assets thanks to more than $1 trillion of net inflows in 2024 alone. This was the most money the industry ever gathered in a year.
VOO set the record for net inflows for a single ETF with $116 billion last year. The Vanguard ETF already added $56 billion in the first four months of 2025. Thanks to VOO, ETFs could cross the $1 trillion mark again in 2025. I believe many people have followed Buffett’s advice and put money into S&P 500 products.
A Record of Consistent Success Is Elusive
While some large-cap funds will outperform the S&P 500 index each year, repeating that success consistently is a challenge. In a separate report known as the Persistence Scorecard, S&P data showed that just 7% of large-cap mutual funds stayed in the top half of its category for three consecutive years ending in 2023. Meanwhile none of the funds were able to land in the coveted top quartile spot.
It should be noted that the SPIVA Scorecard and the Persistence Scorecard do not incorporate data from the growing supply of actively managed ETFs now available. These ETFs tend to charge lower fees than the average mutual fund.
Investing is hard and, for many, a low-cost index approach is easy. In addition, indexing works. Buffett knew it, and many advisors are better for having listened to him.
A message from Advisor Perspectives and VettaFi: To learn more about this and other topics, check out our most recent market outlooks.
Read more articles by Todd Rosenbluth
