Over many years, Warren Buffett has put forward a consistent position on personal investing: rather than picking individual stocks or trying to predict where markets are headed, most people are better served by placing their money in a low-cost fund that tracks the S&P 500. The view he has put forward across his time at Berkshire Hathaway — first as chairman, then as chief executive — holds that retail investors require no sophisticated strategy to build wealth at a steady pace.
In his 2017 shareholder letter, Buffett put forward the view that a low-cost S&P 500 index fund represented his standard guidance for investors. Renewed attention has continued to flow toward that guidance as the S&P 500 — an index tracking 500 of the largest publicly traded companies in the United States — has climbed to all-time highs. Touching a peak of 7,819 points in recent trading, the benchmark now stands roughly 14% above where it opened the year, about 80% above its level from five years ago, and close to eleven times higher than the sub-700 reading it posted during the 2008 financial crisis.
Buffett has long advised that picking individual winners, choosing entry and exit points, or attempting to forecast market movements are endeavours most investors would do well to leave alone. By mirroring a broad market index, this category of low-fee fund spreads an investor's exposure across numerous companies simultaneously, sidestepping the time and effort that picking individual stocks would otherwise demand.
Buffett has maintained over many years that steep management charges quietly drain portfolio returns, with fund operators regularly drawing compensation for strategies that show no demonstrable advantage over lower-cost options. During a 2008 conversation with author Tim Ferriss at Berkshire Hathaway's annual shareholder meeting, Buffett described an approach centred on putting money into index funds and then stepping away — noting that financial professionals have little incentive to recommend it because no fee or commission attaches to such guidance, and that many in the industry would instead pitch their own services as a path to outperforming that result, a promise Buffett expressed doubt about.
Separately, he has directed the trustee set to manage assets left to his wife upon his death to follow a broadly similar strategy. Ninety per cent of the funds are directed into a low-cost S&P 500 index fund, with the remaining tenth allocated to short-term government bonds.
Writing to the trust's shareholders, he put forward a case that the investment vehicle's methodology would, across an extended time horizon, produce gains outpacing those typically recorded by a broad range of market participants — a grouping he described as encompassing pension funds, institutional investors, and private individuals whose portfolios are managed by advisers charging elevated fees. At its core, the approach rests on capturing equity market growth over time, sidestepping the need for frequent trading activity or the overhead of active portfolio management fees.
A conviction that the US economy will deliver gains over time underpins the way Buffett approaches investment guidance. At the height of the 2008 financial crisis, Buffett published a piece urging investors to hold onto American assets rather than abandon their positions over what he characterised as near-term market turbulence, adding in the piece that equity markets would, over time, trend toward positive territory.
Cataloguing the twentieth century's accumulated shocks — two global wars, numerous armed confrontations that consumed both human lives and national resources, the Great Depression, around a dozen economic downturns and financial crises, energy supply disruptions, a widespread influenza outbreak, and a presidency that ended in scandal — he noted that the Dow had still advanced from 66 to 11,497 across that same span.
