This Is the Only Investment Warren Buffett Recommended the Last Time the Stock Market Crashed

For the better part of 60 years, Berkshire Hathaway's (NYSE: BRK.A)(NYSE: BRK.B) "Oracle of Omaha" has been living up to his name. Through the closing bell on April 9, Warren Buffett had overseen an aggregate return in his company's Class A shares (BRK.A) of greater than 6,310,000%!

When you practically double up the annualized total return of the benchmark S&P 500 (SNPINDEX: ^GSPC) over six decades, including dividends, you're going to earn quite the following on Wall Street. Investors are constantly looking for signals from the Oracle of Omaha as to which stock(s) they should buy.

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Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.

But in spite of Buffett's love for investing in great businesses, he doesn't offer stock-specific recommendations. He might speak glowingly about the job CEO Tim Cook has done at Apple, which is Berkshire Hathaway's largest holding by market value, but you'll never see Berkshire's chief recommend that investors buy Apple stock.

There is, however, one investment Buffett has previously recommended for everyday investors -- and this suggestion was, coincidentally, last made following a stock market crash.

Here's the only investment Buffett has recommended for everyday investors

As you've probably noticed, volatility has been historic on Wall Street in recent weeks. Between April 3 and April 4, the S&P 500 lost 10.5% of its value, which marked the fifth-steepest decline in the benchmark index in 75 years. It also firmly put the word "crash" on the table for investors.

The last time Wall Street was talking about a bona fide crash was in February-March 2020, during the early stages of the COVID-19 pandemic. In a span of 33 calendar days, the broad-based S&P 500 lost 34% of its value. It was the quickest 30% decline in the stock market's history, and the textbook definition of a crash.

Less than six weeks after the S&P 500 reached its COVID-19 crash bottom, Berkshire Hathaway held its annual meeting, albeit virtually. During this meeting, which typically sees Buffett answer a barrage of investors' questions over a five-hour period, the Oracle of Omaha offered one direct recommendation for everyday investors. Said Buffett,

In my view, for most people, the best thing to do is to own the S&P 500 index fund... You're dealing with something fundamentally advantageous, in my view, in owning stocks. I will bet on America the rest of my life.

These statements summarize two core philosophies for Warren Buffett. Firstly, the U.S. economy will steadily grow over long periods. Even though recessions are normal, healthy, and inevitable, the average downturn in the U.S. economy over the last eight decades has endured only 10 months. In comparison, the typical economic expansion has stuck around for about five years. Wagering on the U.S. economy to grow, and for public companies to benefit from that growth, has been a wise move.

To build on this point, stock market cycles aren't linear, either. Based on data aggregated by Bespoke Investment Group, the average S&P 500 bear market dating back to the start of the Great Depression lasted 286 calendar days (through June 8, 2023). Meanwhile, S&P 500 bull markets have lasted an average of 1,011 calendar days -- 3.5 times as long as bear markets -- over 94 years.

Secondly, this suggestion of buying an S&P 500 index fund speaks to the idea of instant diversification and exposure to the U.S. economy. The S&P 500 is comprised of 500 of the largest and most-influential businesses, many of which are profitable on a recurring basis and will benefit over time from a growing U.S. and global economy.

Image source: Getty Images.

There are two dozen S&P 500 index funds, but this is the best of the bunch

You might be wondering which S&P 500 index fund to consider buying. After all, there are currently 24 funds that are attempting to mirror the performance of the benchmark index.

The two most-commonly chosen for investors' portfolios are the Vanguard S&P 500 ETF (NYSEMKT: VOO) and SPDR S&P 500 ETF Trust (NYSEMKT: SPY). These are index funds that own stakes in all 500 companies (a few of which have two classes of shares) that comprise the S&P 500, and adjust their holdings when companies are added or removed due to their market cap, mergers and acquisitions, or their inability to meet required Securities and Exchange Commission filing deadlines.

The SPDR S&P 500 ETF Trust has approximately $576 billion in invested assets, while the Vanguard S&P 500 ETF sports $1.32 trillion in invested assets. There's a very good reason for this variance, and it's precisely why the Vanguard S&P 500 ETF is the smartest index fund to own if you want to closely mirror the performance of the S&P 500.

The key difference between these two index funds is their net expense ratios. This is the fee investors pay annually to cover management, marketing, and administrative costs, less any discounts or fee waivers.

The SPDR S&P 500 ETF Trust has a low net expense ratio of 0.09%. To put this figure into context, you'll pay $0.90 in fees for every $1,000 invested. In comparison, the Vanguard S&P 500 ETF offers an even lower net expense ratio of 0.03%, which works out to $0.30 in fees for every $1,000 invested.

On the surface, six basis points doesn't sound or look like much. But if you're investing a lot of money into an S&P 500 index fund, or allowing your investment to grow over multiple decades, this six-basis-point difference can really add up.

Hypothetically, if you invested $500,000 into the SPDR S&P 500 ETF for 30 years and averaged an annual return of 7%, you'd pay $94,880 in fees and end up with $3,711,247. This same scenario with the Vanguard S&P 500 ETF would result in just $31,884 in fees and $3,774,243 in future value. It's quite the difference, and all the more reason why the Vanguard S&P 500 ETF is the superior tracking fund to own.

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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.