Despite the stock market volatility in recent months set off by the coronavirus pandemic, the Oracle of Omaha declared passive investing isn’t dead.
Warren Buffett stood by his defense of index funds, which are mutual funds that track market indices, such as the Standard & Poor’s 500 index. These investments aren’t actively traded by a wealth manager.
“If you say the day of investing in America is over, I would disagree quite violently,” Buffett said during the 2020 Berkshire Hathaway Annual Shareholders meeting. “There’s something special about index funds.”
He remains so passionate about index funds that it’s a key component of his estate planning.
“Well I can tell you I haven’t changed my will and it directs that my widow would have 90% of the funds in index funds,” Buffett said. “I think it’s better advice than people are generally getting from people that are paid a lot to give advice.”
‘I know which side is going to win over time’
Buffett extolled the low fees offered by index funds along with their profitable performance. He also alluded to some financial advisors who focus more on selling investments than seeing them grow.
“One side has high fees and they think they can pick out stocks and the other side has low fees,” Buffett said. “I know which side is going to win over time.”
A recent study by Index Fund Advisors, an investment firm that showed that just two of Vanguard's actively managed funds could outperform the market.
While he said not all advisors don’t know what they’re doing, he cautioned investors to understand that many are sales-driven.
“You’re dealing with an industry where it pays to be a great salesperson,” Buffett said. “There’s a lot more money in selling than in actually managing, if you look into the essence of investment management.”
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