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Index Investing: Warren Buffet Approved

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It goes without saying, Warren Buffet is a legendary investor. Even if you know nothing about investing, you know he's synonymous with success. A true household name.

His track record speaks for itself. From 1965-2018, he led Berkshire Hathaway to annualized returns of ~ 20%. In contrast, the S&P 500 had average annual returns of ~ 9% over this time. Beating the market by twofold is impressive, to do it for decades is unheard of.

How Does He Do It?

Buffet is a value investor. He spends a lot of time analyzing fundamentals, only investing in companies that meet his rigorous standards.

Should I Pick Stocks Like Warren? 

No. Despite his success, Buffet is a huge advocate of index investing.

Why?

Fees, Fees, Fees

"A low-cost fund is the most sensible equity investment for the great majority of investors. My mentor, Ben Graham, took this position many years ago, and everything I have seen since convinces me of its truth." 

Fees devour returns. Index ETFs cost a fraction of active funds. Ranging from 2-4 times cheaper. These savings add up and have a huge impact over time.

Stock Picking Is Hard

"The 21st century will witness further gains, almost certain to be substantial. The goal of the non-professional should not be to pick winners — neither he nor his 'helpers' can do that — but should rather be to own a cross-section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index  fund will achieve this goal."

Even Buffet attests how difficult it is to pick winners. The data backs this. Time and time again, we see most active investors failing to beat the market.

Index Investing Makes Dumb Money Smart

"By periodically investing in an index fund, for example, the know-nothing investor can actually outperform most investment professionals. Paradoxically, when 'dumb' money acknowledges its limitations, it ceases to be dumb."

Simply buying and holding an index fund can make you an above average investor, all while paying rock-bottom fees. What a deal!

Warren Buffet is a wise man. Known for his quotes as much as he is for his investing. His insights are thoughtful and backed by decades of experience and data. His praise for index investing speaks volumes. 


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