The reason Buffett and other experts are fans of index funds is these investments provide an easy way to add diversification to your portfolio at a low cost. ... In fact, looking ahead, he thinks investing in the broad market could offer a better return than his own business.
Buffett warned against investing in individual stocks, as "I do not think the average person can pick stocks," he said. "I would like particularly new entrants to the stock market to ponder just a bit before they try and do 30 or 40 trades a day in order to profit from what looks like a very easy game," Buffett said.
Investing in index funds has long been considered one of the smartest investment moves you can make. Index funds are affordable, enable diversification, and tend to generate attractive returns over time. Historically, index funds outperform other types of funds that are actively managed by top investment firms.
In other words, buy a low-cost index fund — Buffett recommends the S&P 500, which holds 500 of the largest companies in the U.S., from Google to Disney to ExxonMobil — and hold onto it for a long period of time.
Beyond his value-oriented style, Buffett is also known as a buy-and-hold investor. He is not interested in selling stock in the near-term to realize capital gains; rather, he chooses stocks that he believes offer good prospects for long-term growth. This leads him to move focus away from what others are doing.
As a condition of his donations, Mr. Buffett urges beneficiaries to cash in the stock and spend the money “in a prompt manner,” and avoid stashing the money away in endowments. After his death, he intends for his remaining shares to be donated within 12 years.
There's no universally agreed upon time to invest in index funds but ideally, you want to buy when the market is low and sell when the market is high. Since you probably don't have a magic crystal ball, the only best time to buy into an index fund is now.
No. You won't get rich off index funds. Not unless you make a lot of money at your job. Index funds are a great vehicle for long term growth over the course of a working persons life that ensure he'll probably have a comfortable but not lavish retirement.
For most long-term investors, any time can be the best time to invest in index funds. However, certain market conditions give index funds an advantage over actively managed funds. There are also times when stock index funds are best, and times when bond index funds are best.
Best Vanguard funds for beginning investors:
Buffett described how he has advised trustees to manage the money he will leave to his wife: “Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund.
Warren Buffett (Trades, Portfolio) has famously said he is against diversification. "Diversification is a protection against ignorance," Buffett once said. "[It] makes very little sense for those who know what they're doing."
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