September 13, 2017
Warren Buffett is arguably the greatest investor of our generation. You’d think investors would hang on his every word.
In honor of his 87th birthday, Business Insider recently summarized his “best” investment advice. Here it is:
For the stock portion of your portfolio, buy a low management fee index fund that tracks the S&P 500 index.
That’s it.
Buffett is surprised that only his friends of modest means follow this advice. His wealthier friends, institutions and pension funds, reject it. They “listen to the siren song of a high-fee manager or, in the case of many institutions, to seek out another breed of hyper-helper called a consultant.”
He has a logical explanation for why this occurs. Wealthy investors and institutions believe they have the resources to buy investments not available to the “masses.” They also think these investments will outperform a simple index.
Buffett estimates the cost (in lower returns) of this false belief at a staggering $100 billion over the past decade.
The beneficiaries of relying on the advice of consultants aren’t the investors or the institutions. Buffett notes this adage: “The likely result from this parade of promises is predicted in an adage: 'When a person with money meets a person with experience, the one with experience ends up with the money and the one with money leaves with experience.'”
If you’re relying on a broker or advisor who tells you they can “beat the market” through market timing, stock picking or mutual fund selection, you may be transferring a good portion of your wealth to them and will probably be disappointed.
You likely would have earned superior returns by investing in a simple index fund.
You can read the Business Insider article summarizing Buffett’s best advice here.
https://youtu.be/Jr2ARVOjdlU?rel=0
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