Memo to Individual Investors ... Warren Buffett Says Own Low Cost Index Funds for the Long Haul

We've advocated the S&P 500 index fund route as the most prosperous and single best investment vehicle for most individual investors.


No less an expert than Warren Buffett agrees with this approach as revealed in Warren Buffett to heirs: put my estate in index funds:


"If you follow the career of billionaire investor Warren Buffett, you likely have kept up on the succession chatter of late.


After all, Buffet is 83 now. Sooner or later, someone will take the reins at his firm, Berkshire Hathaway, and that person will pick up the mantle of his amazing performance over the years.


They will be tough shoes to fill. Buffett racked up nearly a 20% annualized return through 2012 from 1965, turning a foundering textile mill into a holding company for ventures that span the globe and run the gamut from consumer goods and newspapers to industrial giants and railroads.


That compares to a 9.4% return on the Standard & Poor’s 500 — quite a run. And while investors have long made the pilgrimage to Berkshire headquarters in Omaha to hear Buffett and his managers speak, they probably weren't prepared for his latest remarks on investing....                                      


Put your money in index funds and move on, he told them. Seriously, you'll do better. In fact, he said, that's what I plan to do with my own money once I am gone.


Here's the quote, from page 20 of his most recent annual letter to Berkshire shareholders , dated Feb. 28. After all of his Berkshire shares are distributed to charity, take the cash, Buffett says, and just buy index funds:
 
My advice to the trustee couldn't be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S & P 500 index fund. (I suggest Vanguard's.) I believe the trust's long-term results from this policy will be superior to those attained by most investors — whether pension funds, institutions or individuals — who employ high-fee managers. . . . 


Again, from the letter: . . . "largely, there's nothing to do. Like crops in the field, a long-term, mostly stock investment cannot help but produce a reasonable return — assuming you don't overthink it and don't spend willy-nilly in a vain attempt to make it grow faster.""


Summing Up


What Buffet says makes perfect sense to me.


But you already knew that.


Invest for the long term the easy way.


And don't pay "experts" for value they don't provide and that you won't receive.


Let more of your money grow over time by not wasting it needlessly and foolishly on the "experts," and don't panic when the fit hits the shan from time to time in the market.


That's my take.


Thanks. Bob.