Index Funds Advice from Warren Buffett
Warren Buffett loves index funds. Well, not for himself as much as the rest of America. To be honest, I’m not sure that he owns any. All I know is that he recommends them to people all of the time.
Now you may be asking, how can he be offering advice on something he doesn’t even own? Well, here is how he can say that.
He is primarily giving this advice to individual investors who aren’t interested in stock picking. He’s also giving this advice to people who don’t have the resources or expertise to have sophisticated investment strategies.
This is the reason he recommends these. All index funds track a particular index. For example, a Dow Jones Index Fund tracks the DJIA.
The Dow has proven itself to grow over time. That’s huge when many mutual funds are falling prey in the market. It’s also significant because so many investment strategies that are set to beat the market rarely actually do. This way, you are not trying to beat the market. You are trying to grow with the market. There’s a huge difference.
The financial statistics tell us that this is actually one of the best ways to earn a reasonable return over time. Many other investments can’t promise you that nor give you reasonable arguments based on hard historical data that it will grow.
The other reason he recommends index funds is because investors then don’t have to go out and do stock picking. That can be a very arduous, tedious, and time consuming project for most people. That’s not to mention that most people don’t want to or can’t do it properly.
If you want to check out a good fund, check out the S&P 500 Index Fund. Well, there are several of them. The S&P 500 is said to be a more accurate picture of the US economy and stock market because they use more companies in their roster.
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One big reason that Warren Buffett recommends index funds is that he understands the extent to which investors are ripped off in actively managed mutual funds by hidden fees and costs. Over a long period of time investors line the pockets of those who claim they can time the market, pick stocks, use strategies based on technical analysis etc. He is exactly right when he says that most investors would be much better off in low cost, low turnover, indexed funds.