Fortune recently ran some investing advice from Warren Buffett. The whole article was quite interesting, but I want to highlight and comment on a couple points he made. Here's the first:
You don't need to be an expert in order to achieve satisfactory investment returns. But if you aren't, you must recognize your limitations and follow a course certain to work reasonably well. Keep things simple and don't swing for the fences. When promised quick profits, respond with a quick "no."
A few thoughts here:
- Thankfully, getting a great (not just "good") return rate, which almost no one can do consistently, is not the major factor in determining investing success. What is? Time invested.
- For most people, a simple, three-fund investment plan will get them a more than adequate return rate.
- If you want to invest in something requiring a bit more expertise, a mentor can get you up to speed very quickly. That's how I was able to get into real estate investing so quickly.
My money, I should add, is where my mouth is: What I advise here is essentially identical to certain instructions I've laid out in my will. One bequest provides that cash will be delivered to a trustee for my wife's benefit. My advice to the trustee could not 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. (VFINX)) 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.
Ha! Love, love, love this advice and sentiment.
Couldn't agree with him more! I've detailed my thoughts on this issue previously in Why I Invest with Index Funds.
It says something when the best (or at least one of the best) investor in the world recommends index funds for most people, doesn't it?