Warren Buffett’s best advice for the average investor is to just buy “the market.” He has singled out the S&P 500 index as a good choice for this approach, and an S&P 500 ETF wouldn’t be a bad choice, but it also isn’t “the market.” A more comprehensive option would be the SPDR Portfolio S&P 1500 Composite Stock Market ETF (NYSEMKT: SPTM). Here’s why.
The S&P 500 index is fairly well structured. As its name implies, it owns around 500 stocks (although corporate events can change the number over the short term). Those stocks are selected by a committee so that they are broadly representative of the U.S. economy. The largest and most important companies in an industry tend to be the ones that get added to the S&P 500 index. The index constituents are weighted by market capitalization, so the largest companies in the index have the most impact on its performance.
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