In his recent Berkshire Hathaway annual letter and 2013 annual report, Warren Buffett shared some very simple financial advice, and he did so along with a great vote of confidence for Vanguard. When writing about the instructions that he had laid out in his will, Buffett stated that his advice for the money left with his wife was that 10% of it should go into short-term government bonds, and the other 90% should go into a low-cost S&P 500 index fund.
“I suggest Vanguard’s [S&P 500 index fund],” wrote Warren Buffett. He also added that the policies long-term results would often be superior to those attained by the average investor, whether owning individual stocks, institutional or pension funds that had high fee managers on staff. Buffett then highlighted the major benefit of cheap tracker funds, saying that the nonprofessional investor’s goal should not be to try and pick winning stocks. Their goal should be to own their own cross-section of businesses that are bound to do well in aggregate.
He also spoke negatively about active investing, stating that institutions and individuals are always urged to sell and buy assets by those providing advice or making the transactions.
He noted that the transactional costs of trading could be huge and lacking benefits for investors in aggregate.
“So ignore the chatter, keep your costs minimal, and invest in stocks as you would in a farm,” wrote Mr. Buffett.