Warren Buffett, a renowned investor has staked $1 million for charitable purposes predicting that he can get better returns on investment compared to a number of managers in a hedge fund. Buffett invested in an S&P 500 passive index fund and his stake is set to be decided later this year. From the look of things, it seems Mr. Buffett is in to make a huge collection. He is indeed correct on this wager as there are so many expensive mediocre funds that continue shortchanging investors. Mr. Buffett is always committed to the simple and low cost investments that are bought and held onto for the long term. His approach has enabled him build a reputable portfolio and pass the message to people that they need to save more in preparation for retirement.
Tim Armour’s Perspective
Investors should be wary of the debates between active and passive. A lot of mutual investment funds offer poor or mediocre long-run returns due to their high administrative fees as well as excessive trading. Opportunity costs and volatility risks of the passive index investments are unknown or underestimated. It is never about the passive or active but delivery of good long term investment returns. Low costs form a key component for these returns. Markets turn and the best thing that an investor should do is growing their nest egg by doing better than the crowd.
An actively managed fund has posted bad results in the past but there are various exceptions. Smart investors have made decent cash from these funds. Investors should look at towering manager ownership and low expenses when looking for an exceptional fund management company. These two filters will enable an investor identify a cluster of fund managers who have outdone average benchmark indexes.
About Tim Armour
Timothy Armour is the Capital Group of Companies’ chairman as well as the principal executive officer at Capital Research and Management Company Incorporated. He is also the Capital Group Companies Management Committee’s chairman. Tim is an equity portfolio executive and has amassed around 32 years of experience in investment at Capital Group. He started off his career as an equity investment market analyst at the company and covered U.S. service and global communications companies. He attended Middlebury College and graduated with a degree in economics.