When it comes to investing Warren Buffet has proved himself right for decades. His style of investing is low cost, simple investments that are bought and held for the long haul. He believes in rigorously analyzing the companies he wants to invest in and build a long-lasting and stable portfolio. His philosophy is that Americans need to save for retirement, to get invested, and stay invested.
Mr. Buffet recently waged $1 million for a charity that he will come ahead in just investing in an S&P 500 passive index of a group of hedge fund managers. The wager will be decided this year, and it appears that once again he will prove himself correct.
The debate between active and passive investments has critically hurt investor portfolios. Several mutual funds provide at best average and poor returns in the long term because of the high cost of management fees and excessive trading. Market volatility also adds to the risk of lowering returns.
Index funds have their place in an investment portfolio; however, the question remains whether they are a safe bet in retirement planning. Investors are not aware of the inherent risk of these funds leading the heavy losses during market downturns.
In comparison, actively managed funds have done worse than the market over a significant period. There are exceptions, however, as Mr. Buffet has remarked. Comparing a smart investor who has put $10,000 in the S&P 500 and made over a million dollars today,
A $10,000 investment into best five active Funds — The Growth Fund of America, AMCAP, Washington Mutual Investors Funds, The Investor Company of America, and American Mutual Fund — has done much better than the savvy investor who has put the same dollar amount in a passive S&P 500 index fund.
Is there a simple formula for investors to identify mutual funds? Looking for funds with low costs and a significant personal investment of the managers will give better results.
Mr. Tim Armour is the Chairman, Director and Principal Executive Officer at Capital Research and Management Company. He also serves as an Equity Portfolio Manager and Chairman at The Capital Group Companies, Inc. He has extensive investment experience. He was appointed chairman in July 2015. Tim holds a bachelor’s degree in economics from Middlebury College in Vermont. Tim is based in Los Angeles.
His advice to investors is that they should find active managers who heavily invest in their funds, “the best managers spend time researching companies — applying in-depth analysis to inform their views and to uncover insights on the companies’ future prospects.”
His philosophy, “our number one mantra is we will get you better returns over time.”
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