Legendary investor Warren Buffett has generated substantial returns for the shareholders of his company, Berkshire Hathaway. From 1964 to 2022, Berkshire delivered an overall gain of 3,787,464%.
Given the astonishing track record, one might assume that Buffett would want this successful trajectory to continue through his estate after his passing. However, the Oracle of Omaha has a different plan.
“One bequest provides that cash will be delivered to a trustee for my wife’s benefit,” he wrote. “My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund.”
Buffett recommended using Vanguard’s S&P 500 index fund.
While this strategy is straightforward and doesn’t require constant monitoring or active trading, Buffett expressed a significant amount of confidence in it.
“I believe the trust’s long-term results from this policy will be superior to those attained by most investors — whether pension funds, institutions or individuals — who employ high-fee managers,” he said.
‘The best thing to do’
An S&P 500 index fund is a type of mutual fund or exchange-traded fund (ETF) designed to replicate the performance of the S&P 500 Index, a primary benchmark for the U.S. stock market. The index reflects the stock performance of 500 of the largest companies listed on stock exchanges in the U.S. and is often considered a barometer for the overall economy.
While Buffett advocates everyday investors make use of index funds, he does not dismiss the value of his own company.
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During Berkshire’s 2021 annual shareholders meeting, Buffett addressed a question about whether his directive to the trustees of his estate to invest significantly in an index fund represents a lack of confidence in Berkshire’s management.
“Well, no, because we’re talking about way less than 1% of my estate,” he clarified, noting that approximately 99.7% of his estate will either go to philanthropies or to the federal government.
“I just think that the best thing to do is buy 90% in S&P 500 index fund,” Buffett emphasized.
The average person can’t pick stocks
Buffett’s preference for recommending index funds stems from his belief that stock picking is not an optimal strategy for average investors.
At the 2021 shareholders meeting, he stated frankly, “I do not think the average person can pick stocks.”
This is where index funds come into play.
Investing in an S&P 500 index fund is not complicated: one simply purchases the fund and holds onto it without the need to select individual stocks.
It’s a passive investment strategy. The fund aims to replicate the index’s performance by holding the same stocks in the same proportions as they appear in the index. Unlike actively managed funds, where fund managers make decisions about how to allocate assets, index funds try to match the index, not outperform it.
Moreover, by investing in an S&P 500 index fund, investors get exposure to 500 large companies across various industries. This diversification can help reduce risk because the fund’s performance isn’t tied to the success or failure of a single company.
In 2023, the S&P 500 surged 24% — and it’s up nearly 6% in 2024.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
TORONTO – Canada’s main stock index was little changed in late-morning trading as the financial sector fell, but energy and base metal stocks moved higher.
The S&P/TSX composite index was up 0.05 of a point at 24,224.95.
In New York, the Dow Jones industrial average was down 94.31 points at 42,417.69. The S&P 500 index was down 10.91 points at 5,781.13, while the Nasdaq composite was down 29.59 points at 18,262.03.
The Canadian dollar traded for 72.71 cents US compared with 73.05 cents US on Wednesday.
The November crude oil contract was up US$1.69 at US$74.93 per barrel and the November natural gas contract was up a penny at US$2.67 per mmBTU.
The December gold contract was up US$14.70 at US$2,640.70 an ounce and the December copper contract was up two cents at US$4.42 a pound.
This report by The Canadian Press was first published Oct. 10, 2024.