Warren Buffett is a name that’s mentioned on this blog every once-in–a-while, but not because you should try to match what he does … but because you should listen to what he says.
Yes, this is the only legitimate time where it’s appropriate to “do as I say, not as a I do.”
We — average investors of average means — don’t have nearly the amount of resources (financial or otherwise) that the Oracle of Omaha has when he makes investing decisions. He does this for a living, and will be known throughout history as one of the best to ever do it.
But he’s an outlier (even amongst famous investors). He lives in a small house. He’s planning on giving away 99% of his wealth, and not entirely to his kids.
For those of us who have normal-sized incomes and normal-sized retirement savings, it makes no sense to try and make the same types of investments that Buffett does. We just can’t.
But we can listen to what he says we should do.
In an interview with CNBC, Buffett re-iterates that the average investor should stick with index funds — specifically name-dropping the S&P 500 Index from Vanguard — in order to invest in large, market-leading companies and keep your fees as low as possible.
The question remains, which shares should investors buy exactly? Buffett says an index fund is a way to avoid the risk of picking individual stocks.
“The trick is not to pick the right company, the trick is to essentially buy all the big companies through the S&P 500 and to do it consistently and to do it in a very, very low cost way,” he added.
Buffett points to the fee savings built into low-cost index funds. The largest such S&P 500 fund, Vanguard’s 500 Index Fund, boasts expense ratios of less than a percentage point.
“Costs really matter in investments,” said Buffett, who in the past has taken aim at costly funds. “If returns are going to be seven or eight percent and you’re paying one percent for fees that makes an enormous difference in how much money you’re going to have in retirement.”
There’s so many good quotes in this interview that I encourage you to watch the whole video (embedded below), but I want to draw your attention to some that I think are relevant.
Speaking about investment advisors, Buffett says:
“Just remember, the person you’re talking to, your fees are their income,” the billionaire said.
“And it leaves your pocket and goes to them and you’d better get something for it. And you really don’t get it in investment management,” he said. “The record shows that the unmanaged index fund is going to do quite well over time and active investment as a group can’t beat it.”
Buy more in bad times, Buffett says, but don’t ever think that you can actually pick stocks.
Still, the Oracle of Omaha warned that “you do not want to ever get the impression that you can pick stocks” and that “can enable you to have an edge. It just doesn’t work that way.”
Watch the whole interview below.
