Why Warren Buffett Favors Investing With Index Funds
April 4th, 2019 | Posted in Investing
Warren Buffett is one of the financial industry’s most successful and respected investors. So when he speaks, investors listen. Except when they don’t.
In his Berkshire Hathaway annual letter to shareholders earlier this year, Buffett talked about the power of index fund investing, and why wealthier investors tend to ignore it.*
“Over the years, I’ve often been asked for investment advice, and in the process of answering I’ve learned a good deal about human behavior,” Buffett said in the letter.
“My regular recommendation has been a low-cost S&P 500 index fund,” he said. “To their credit, my friends who possess only modest means have usually followed my suggestion.”
“I believe, however, that none of the mega-rich individuals, institutions, or pension funds has followed that same advice when I’ve given it to them.”
“Wealthy individuals, pension funds, endowments and the like will continue to feel they deserve something ‘extra’ in investment advice. Those advisors who cleverly play to this expectation will get very rich. This year the magic potion may be hedge funds, next year something else.”
“My calculation, admittedly very rough, is that the search by the elite for superior investment advice has caused it, in aggregate, to waste more than $100 billion over the past decade. Figure it out: Even a 1% fee on a few trillion dollars adds up.”
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