Warren Buffet offered some advice on investing in his annual shareholder’s letter recently. Having been in the field for a very long time, he based his arguments on the experiences he has collected over the years. He placed a $1 million bet that would go to charity if his predictions failed. In his perspective, he observed that investing in an S&P 500 passive index fund, one would reap more as opposed to investing in hedge fund managers. This topic has attracted a debate, and Tim Armour readily gave his insights. Tim Armour respects Buffet’s school of thoughts and regards him as best placed to advise Americans on the need of investing. He also agrees with the method of investing in low-cost stocks and hold them for a long time to realize returns.
Passive Index Versus Hedge Funds
According to Timothy Armour, risks associated with passive funds are not well known to investors and those who know them often underestimate them going by recent statistics. Many hedge funds incur a lot of management costs and sometimes they over trade, which gives long-run returns that are poor. In his opinion, the debate should not be about passive or active but rather about low costs and long-term investment returns.
Despite the traditional belief that passive funds are a more secure way to save for retirement, it is advisable to note that they are not favorable during down markets. Quoting his experience at Capital Group that has been in existence for 86 years with 18 equity funds, the firm has had an average of 1.47 percent annually above index rates. This cements his argument that for hedge funds, if an investor can identify good managers, then he will reap for sure.
About Timothy Armour
Timothy Armour is a prominent person in the capital market in Los Angeles. His training in economics gave him a headway start for his career. He joined Capital Group as a participant in the associate’s program and worked his way up to his current post of the chairman and CEO.