2 diverse ETFs that legendary investor Charlie Munger could invest in

If Charlie Munger were looking to buy ETFs, these are two he might choose.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Some of the greatest investors in the world like Berkshire Hathaway duo Warren Buffett and Berkshire Hathaway are fully aware of the fact that it's getting harder to outperform the index these days.

An index is hard to beat for many reasons.

Firstly, most studies show that on average the people who do best don't do anything to their portfolios – buying and selling just doesn't usually help. Second, disruption is happening so much quicker in the world that it's easier to benefit from global growth by owning lots of shares at once. Third, various psychology biases can cause us to make the wrong decisions.

Warren Buffett's children have said that Charlie Munger is the smartest person they know. So, with that in mind, here are two exchange-traded funds (ETFs) I would imagine Mr Munger might say are decent long-term ideas:

iShares S&P 500 ETF (ASX: IVV)

The S&P 500 might be the best index to invest in.

It is very diverse with 500 constituents spread across various industries. Most of the underlying earnings are earned from around the world – these are global businesses we're talking about. As some businesses fade, the newer and exciting ones replace them – such as Facebook.

The S&P 500's largest holdings include Microsoft, Apple, Amazon, Facebook, Alphabet and Berkshire Hathaway.

Most ETFs seeking to give investors exposure to the S&P 500 have very low management fee costs. Blackrock is the provider of the iShares S&P 500 ETF and its annual fee is an extremely-low 0.04%.

Both Mr Munger and Mr Buffett have long suggested that most people will do very well by just investing in the S&P 500.

Vanguard FTSE Asia Ex Japan Shares Index ETF (ASX: VAE)

Mr Munger has come out with plenty of memorable quotes over the years.

One of his best is "fish where the fish are." He recently said this about the Chinese share market (in this linked video) at the Daily Journal Annual Meeting. He was essentially saying that the Chinese market offers the most opportunities.

Of course, there are plenty of things to dislike about the idea of investing in China. Governance risks, independence from the government and so on.

But, there are plenty of reasons to like investing there too. Much lower valuations, huge long term economic growth, incredible technological innovation and a vast population.

Investing in individual Chinese shares could be even riskier than picking US shares or ASX shares, so this Vanguard Asian ETF could be the best way to broadly invest into the growing economic region.

Don't forget, as India grows in economic power this index should shift to reflect that as well.

Foolish takeaway

If you hold with many years in mind, decades preferably, then you can't go wrong with the S&P 500. But, I am particularly drawn to the Vanguard Asian ETF due to its low valuation and pleasing underlying earnings growth – I am looking to increase my allocation to this ETF quite a bit this year.

Motley Fool contributor Tristan Harrison owns shares of VANGUARD FTSE ASIA EX JAPAN SHARES INDEX ETF. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Index investing

a business person in a suit and tie directs a pointed finger upwards with a graphic of a rising bar graph and an arrow heading upwards in line with the person's finger.
Index investing

BetaShares Nasdaq 100 ETF (NDQ) surges 7%: a reminder not to delay a good buying opportunity

Waiting for a bigger dip could cost you...

Read more »

ETF written on wooden blocks with a magnifying glass.
Index investing

Australian equities ASX ETFs set for record quarter

International turmoil has caused a surge in popularity for domestic equities ASX ETFs this quarter.

Read more »

Cubes placed on a Notebook with the letters "ETF" which stands for "Exchange traded funds".
ETFs

If I could only buy 1 ASX ETF, it would be this one

This ETF simply covers all bases...

Read more »

ETF written on wooden blocks with a magnifying glass.
ETFs

VAS vs VHY: Which is the better Vanguard ETF?

A higher yield isn't always the best choice.

Read more »

A woman looks questioning as she puts a coin into a piggy bank.
Index investing

The Vanguard US Total Market ETF (VTS) is down 8% from its peak. Is it time to buy?

Like many index funds, VTS is looking cheap right now.

Read more »

ETF written on wooden blocks with a magnifying glass.
ETFs

Meet the 2 new Vanguard ETFs that just hit the ASX

Vanguard has something for everyone with these new funds...

Read more »

A man casually dressed looks to the side in a pensive, thoughtful manner with one hand under his chin, holding a mobile phone in his hand while thinking about something.
Index investing

Vanguard Australian Shares ETF (VAS): Should we be worried about CBA?

Has CBA grown too big for VAS' boots?

Read more »

A businessman looking at his digital tablet or strategy planning in hotel conference lobby. He is happy at achieving financial goals.
Index investing

Is the Vanguard Australian Shares Index ETF (VAS) a buy at $105?

It can still be a good idea to buy index funds when they look expensive...

Read more »