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The Oracle's Index Fund

February 28, 2017 - 0 comments

Image by Pete Souza from Wikimedia Commons

 

Warren Buffett obviously knows a thing or two about investing. So people pay very close attention to his annual letter to shareholders in Berkshire Hathaway.

But although people think Buffett is a genius at picking stocks, his advice to investors is to use low-cost index funds. And he is very critical of the big fees charged by high-priced fund managers. He says $100 billion has been wasted on fund fees that have overcharged and underperformed over the past decade.

"The bottom line: When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients," he wrote. "Both large and small investors should stick with low-cost index funds."

Buffett gets into the psychology of why people expect to have to pay more for better results and why some advisers are reluctant to recommend index funds.

Buffett made a bet nine years ago that an S&P 500 index fund would outperform a collection of hedge funds. With one year left in the 10-year wager, Buffett's index fund has grown by 85.4%. The hedge funds chosen by Protege Partners have delivered an average return of 22%.

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