This Is How Warren Buffett Says to Invest

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Warren Buffett, famous investor and fourth-richest person in the world, has some investing advice for you. And it doesn’t involve ratios, valuations, or any nonsensical acronyms that have something to do with cash flow. Nope, Buffett’s recommendation is far more straightforward: He says you should be buying index funds.

Beating the market versus moving with the market

An index fund is a mutual fund or exchange-traded fund (ETF) that mimics the behavior of an underlying index. When you invest in index funds, your goal is to keep pace with the market. That’s very different from the approach taken by stock pickers and active mutual fund managers — people like Buffett himself. Stock pickers don’t want to ride along with the market; they want to beat the market.

The trouble is, few people can consistently pull that off. Buffett, as CEO of Berkshire Hathaway, had an amazing run of outperforming the S&P 500, but even he’s been less successful recently. And according to S&P Indices Versus Active (SPIVA), 80.6% of actively managed large-cap mutual funds underperformed the …

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Author: Catherine Brock



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