Warren Buffett Backs Passive Funds, Should You?

Warren Buffett believes a passively-managed investment strategy would deliver better results in the long-run than those achieved by most investors. What does this mean for you?

Jose Garcia Zarate 8 June, 2015 | 11:27AM
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A year ago, Warren Buffett, arguably the world’s most famous stock picker, surprised the investor community by revealing that, in his will, he advises his wife not to bother with active managers and instead to place the entire estate in a simple portfolio of low-cost index funds. He explained that, in his view, a passively-managed investment strategy would deliver better results in the long-run than those achieved by most investors – whether individual or institutional – who use high-fee active managers.

Asset allocation requires an understanding of market trends

In leaving this advice to his spouse, Buffett underlined the two key principles underpinning the passive investing philosophy. First, it is tremendously difficult to find an active manager who truly delivers on a consistent basis. And second, cost, which, let’s not forget, is the only constant certainty when investing and the single most important factor eroding a portfolio’s long-term returns.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Jose Garcia Zarate

Jose Garcia Zarate  is Associate Director of Passive Strategies Research for Morningstar Europe

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