In his 2014 annual letter, Warren Buffett outlined instructions he has left for trustees: “Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund.”
In his 2014 annual letter, Warren Buffett outlined instructions he has left for trustees:
“My advice to the trustees could not be more simple:
“Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund (I suggest Vanguard’s). I believe the trust’s long term results from this policy will be superior to those attained by most investors – whether pension funds, institutions, or individuals – who employ high-fee managers.”
As with everything else that the Oracle of Omaha proclaims, that piece of advice has been deeply analyzed. In fact, it seems especially pertinent in light of recent market volatility. (See also: 4 Mutual Funds Warren Buffett Would Buy.)
Index funds have grabbed an increasing share of the market for investment products in recent times. While they may be right for Buffett’s heirs (who can invest substantial amounts to generate prolific returns), are index funds the correct instruments for lay investors?
What’s Wrong With Actively Managed Funds?
The general wisdom is that risk should be commensurate with returns. Thus, if a high-risk investment is successful, then it should translate into handsome returns. Following the same logic, actively-managed funds, which have a high risk profile and employ legions of talented managers (including some aspiring Buffetts), should translate into high returns.
Read more: Warren Buffett’s Love Letter to Index Funds | Investopedia http://www.investopedia.com/articles/investing/032416/warren-buffetts-love-letter-index-funds.asp#ixzz44DG4ZG6L
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