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1Repair Windows errors before they cause bigger problems2Fix the driver behind crashes, sound loss and screen glitches3Clear out junk files and repair common Windows errorsFor most hands-off, long-term investors, a low-cost S&P 500 index fund is the better default. It gives broad exposure to large U.S. companies through a rules-based vehicle and, in the case of Vanguard S&P 500 ETF (VOO), reported an annual expense ratio of 0.03% for 2025. Berkshire Hathaway can be appropriate when you intentionally want one-company exposure, trust the company’s capital-allocation process, and accept management, succession and valuation risk. Its impressive historical record is evidence about the past, not a promise for the next 20 years.
The choice is therefore not simply “which earned more?” It is a decision about diversification, costs, control, taxes, monitoring and the type of risk you can live with during a long holding period.
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What you are actually choosing
Buying Berkshire Hathaway Class B shares (BRK.B) makes you a shareholder in one corporation. That corporation owns operating subsidiaries, investments and cash, and its results depend on how management runs those businesses, underwrites insurance, allocates capital, makes acquisitions and handles succession. You receive one company’s aggregate outcome, even though that company has many businesses and securities inside it.
Buying an S&P 500 index fund gives you a fund interest designed to track a large-cap U.S. stock benchmark. VOO is one example: Vanguard describes it as “an exchange-traded share class of Vanguard 500 Index Fund.” The fund holds the securities required by the index methodology, so your result is driven by the combined performance of many issuers rather than by one corporate balance sheet.
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Neither option is a savings account or a guaranteed-return product. An S&P 500 fund can fall sharply in a bear market, and Berkshire can underperform the index for years. Diversification reduces the effect of a single-company failure; it does not remove market risk.
The historical record: remarkable, but backward-looking
Berkshire Hathaway’s 2025 shareholder letter reports compounded annual gains from 1965 through 2025 of 19.7% for Berkshire and 10.5% for the S&P 500. Those figures are the company’s historical comparison for that 61-year period, not a forecast, target or expected premium.
| Measure | Berkshire Hathaway | S&P 500 comparison |
|---|---|---|
| Compounded annual gain, 1965–2025 | 19.7%, as reported in Berkshire Hathaway’s 2025 letter to shareholders | 10.5%, as reported in the same Berkshire comparison table |
| What the figure describes | The historical performance of Berkshire Hathaway over the stated period | The historical performance of the S&P 500 over the stated period |
| What it does not establish | That Berkshire will outperform in the next decade or two | That an index fund will match the exact index after all expenses and taxes |
Long periods can contain unusual advantages that are difficult to repeat: favorable acquisitions, unusually successful capital allocation, changes in interest rates, business-model evolution and the specific people making decisions. The comparison also comes from Berkshire’s own shareholder communication, so it should be read as a historical record rather than an independently verified forward-looking estimate. A 19.7% annualized result does not mean an investor received 19.7% every year; individual years varied substantially.
Diversification and concentration
What diversification does for an index fund
An S&P 500 fund spreads ownership across a large set of U.S. large-cap companies. A weak result at one issuer generally has a smaller effect on the whole fund than the same problem would have on a single stock. Index rules also determine which companies enter, leave or change weight, so the portfolio is refreshed without the investor having to research every holding.
This is broad diversification within one market segment, not universal diversification. The fund is concentrated in U.S. equities and large companies. It does not automatically provide bonds, small-cap stocks, emerging-market shares, private assets or protection from a broad U.S. market decline. When large U.S. companies fall together, an S&P 500 fund falls with them.
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What Berkshire’s internal diversification means
Berkshire owns many operating businesses and investments, so it is more diversified than a narrowly focused company. That internal spread can reduce dependence on any single subsidiary. However, every shareholder still owns one issuer. A company-level shock, an insurance loss, a major investment mistake, a regulatory problem or a disputed succession decision can affect the entire stock at once.
Owning several Berkshire subsidiaries indirectly is not the same as owning several independent corporations. The parent company controls capital allocation, financing and major strategic decisions. You cannot diversify away that parent-level exposure while holding only BRK.B.
Costs: fund expense versus stock economics
VOO and other index-fund expenses
Vanguard’s 2025 shareholder report lists VOO’s cost at $3 for a hypothetical $10,000 investment, equivalent to a 0.03% annual expense ratio. The report also says the ETF’s performance was in line with its benchmark for the year ended December 31, 2025. The $3 figure is an illustration of the stated annual operating cost, not a guarantee of your future dollar charge; your balance changes, and other trading or account costs may apply.
Other S&P 500 funds can have different expense ratios, spreads and tracking results. Compare the current prospectus, expense ratio, bid-ask spread, securities-lending policy and tax treatment before buying. A low expense ratio helps, but the cheapest fund is not automatically the best fit if it is difficult to trade in your account or has a different structure.
Berkshire’s cost structure
BRK.B does not charge a mutual-fund or ETF expense ratio because it is a company share rather than a pooled index vehicle. That does not make ownership costless. You pay a brokerage commission if your platform charges one, absorb the bid-ask spread, and bear the economic effect of whatever valuation you pay for the stock. Berkshire also incurs expenses inside its operating companies and investment portfolio; those are part of the company’s results rather than a separate line item on your brokerage statement.
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A stock that looks inexpensive can still produce a poor return if its businesses deteriorate. A stock that looks expensive can continue rising, but the valuation leaves less room for error. The relevant comparison is your total after-cost, after-tax result, not the presence or absence of a labeled fund fee.
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With an index fund, the fund sponsor follows the index methodology and handles implementation. Individual companies still have managers, but your result is not dependent on one corporate leadership team making every portfolio-level decision. Poor performance at one company can lead to a lower index weight or removal under the rules.
With Berkshire, management decisions are central to the investment case. Capital allocation, insurance underwriting, acquisitions, share repurchases, cash management and the treatment of subsidiaries all affect intrinsic value. A capable successor may preserve the culture and discipline; a weaker process could reduce future returns even if the underlying businesses remain sound. Because those choices occur at the parent level, a BRK.B holder must accept succession risk that an index-fund holder spreads across many issuers.
This does not mean Berkshire’s management will fail. It means the range of outcomes is more dependent on a small number of decision-makers than it is in a rules-based index portfolio.
Taxes, dividends and cash flow
Berkshire has historically retained earnings rather than paying a regular dividend. Retention can allow the company to reinvest cash without an immediate shareholder distribution, but it also means an investor seeking periodic income must sell shares or use other assets. Selling can create a taxable event, depending on your jurisdiction, account type and cost basis.
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An S&P 500 fund can distribute dividends and realized capital gains, and selling fund shares can also create a taxable event. The actual result depends on whether you hold the investment in a taxable account, retirement account or another structure, as well as on local tax rules. Do not assume that Berkshire is automatically “more tax efficient” or that an index fund is automatically tax-inefficient. Review the current fund distribution history, your account rules and advice applicable to your country.
How the investments may behave differently
Berkshire and the S&P 500 can move in the same broad direction because both are exposed to the U.S. economy and public equities, yet their paths can diverge. Berkshire’s cash position, insurance results, private operating businesses and investment mix can make its returns differ from the index in a particular year. The index reflects the aggregate result of its constituent companies and changes as those companies’ market values change.
Periods of underperformance are possible for either choice. Berkshire can lag when the index’s fastest-growing companies lead the market, when its cash earns less than equities, or when investors assign a lower valuation to the conglomerate. The index can lag Berkshire when Berkshire’s operating results and capital allocation are unusually strong or when the index’s largest sectors struggle. You cannot know in advance which pattern will dominate over your investment horizon.
Decision framework: which one fits your situation?
Choose an S&P 500 index fund as the default when:
- You want one simple holding for U.S. large-cap equity exposure.
- You do not want to analyze Berkshire’s businesses, valuation or succession plans.
- You prefer rules-based portfolio maintenance over dependence on one management team.
- You are building a core allocation and value broad exposure more than a distinctive corporate strategy.
- You can tolerate large market declines without selling in panic.
Consider Berkshire as a deliberate allocation when:
- You understand that BRK.B is one corporate issuer, despite its many subsidiaries and investments.
- You are comfortable with management, capital-allocation and succession risk.
- You have a reason to want Berkshire’s particular mix of operating businesses, securities and retained cash.
- You can hold through periods in which it trails the S&P 500.
- You are willing to monitor company reports, valuation and strategic changes.
Use neither as your entire plan when:
- Your goals require bonds or cash reserves that an equity fund and Berkshire do not provide.
- You need a globally diversified portfolio rather than primarily U.S. large-cap exposure.
- You cannot withstand a substantial temporary loss in stock value.
- You are investing money needed soon for rent, tuition, taxes or an emergency.
A practical way to decide before buying
- Define the job of the money. Separate emergency savings and near-term spending from long-term equity capital. Neither BRK.B nor an S&P 500 fund is designed to preserve a fixed value over a short horizon.
- Write down the risk you are accepting. For an index fund, state that you accept U.S. large-cap market risk. For Berkshire, add single-issuer, management and succession risk.
- Select a core exposure. If simplicity and broad large-cap diversification are the priority, use a low-cost S&P 500 fund such as VOO or another suitable fund available in your account.
- Evaluate Berkshire separately. Read the latest annual report and shareholder letter, identify how you value its operating businesses and investments, and decide what evidence would make you reduce or sell the position.
- Set a position limit before emotions arrive. Choose the maximum share of your portfolio you are willing to place in one company. The appropriate percentage depends on your finances, other holdings and ability to tolerate loss; there is no universally correct number.
- Check account and tax consequences. Confirm trading costs, fund distributions, withholding rules and the treatment of gains in your jurisdiction before placing an order.
- Automate contributions and document the plan. A written schedule reduces the temptation to switch after a strong or weak quarter. Record why you own each investment and the conditions that would change your decision.
- Rebalance on a stated rule. Review at a calendar interval or when an allocation moves beyond a threshold you selected. Rebalancing is a risk-control decision, not a prediction that one asset will outperform next.
What to monitor after purchase
If you own an S&P 500 fund
- Confirm the current expense ratio and tracking difference in the fund’s latest documents.
- Check whether your actual holding still matches the role you assigned it; an S&P 500 fund remains U.S. large-cap exposure, not a complete global portfolio.
- Review distributions and account taxes when you hold the fund outside a tax-advantaged account.
- Keep the contribution and rebalancing process consistent rather than reacting to daily market headlines.
If you own Berkshire
- Read the annual report and shareholder letter for operating results, insurance developments, investment changes, cash levels and capital-allocation decisions.
- Track whether the reasons you bought the stock remain true, rather than relying only on the historical 1965–2025 return.
- Pay attention to succession disclosures and changes in how major decisions are made.
- Compare the market price with your estimate of the company’s value, recognizing that any estimate is uncertain.
- Decide in advance how much underperformance you can tolerate before reviewing the thesis instead of selling solely because the index is ahead.
Common mistakes in the comparison
Treating the historical spread as a forecast
The 19.7% versus 10.5% figures describe one completed period ending in 2025. They do not establish a repeatable 9.2-percentage-point advantage. Future returns depend on starting valuations, business results, economic conditions, management decisions and investor behavior.
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Calling Berkshire “as diversified as an index”
Berkshire owns a range of businesses and investments, but the shareholder still owns one parent company. That concentration is materially different from owning an index vehicle whose exposure is spread across many issuers.
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Calling the index “safe”
An S&P 500 fund can experience severe declines because all of its holdings are equities tied largely to the U.S. market. Diversification addresses company-specific risk; it does not prevent a market-wide loss.
Comparing only the expense-ratio labels
VOO’s reported 0.03% cost is low, but your total result also reflects trading spreads, taxes, distributions and tracking performance. Berkshire has no fund expense ratio, yet its valuation and corporate operating costs affect returns.
Ignoring the need for income
Berkshire’s historical practice of retaining earnings means it does not function like a regular dividend-paying income fund. An index fund’s distributions vary and are not guaranteed either. Match the investment to your cash-flow plan instead of assuming either holding will produce a fixed paycheck.
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Bottom-line decision
If you want a durable, low-maintenance core for long-term U.S. equity investing, start with a low-cost S&P 500 index fund. Its broad issuer exposure and low stated operating cost make the decision easier to maintain through market cycles. Berkshire is a reasonable alternative or complement only when you consciously accept one-company exposure and are prepared to follow management, valuation and succession developments. The historical record is a reason to study Berkshire, not evidence that it will outperform over your next 20 years.
Quick Recap
Primary documents to read
- Berkshire Hathaway, 2025 Letter to Shareholders, for the 1965–2025 performance comparison and management discussion.
- Vanguard Index Funds, Annual Shareholder Report dated December 31, 2025, for VOO’s reported 0.03% expense ratio and benchmark comparison.
- Vanguard S&P 500 ETF product description, which identifies VOO as an exchange-traded share class of Vanguard 500 Index Fund.
- Berkshire Hathaway’s shareholder-letter archive and 2025 Form 10-K for company-specific operating, investment and succession information.
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