That’s what LeBron James wanted to know when he asked the billionaire investor for investment advice during a segment on CNBC earlier this year. “Everybody’s got an idea for him, and usually the simplest is the best” said Buffett.
Often athletes are approached with investment ideas tied to restaurants or real estate, but Warren Buffett did not recommend stock picking, real estate or anything complicated to the multimillionaire basketball star. Buffet recommended that LeBron buy a low-cost index fund. “Just making monthly investments in a low-cost index fund makes a lot of sense,” Buffet said.
Investing in low-cost index funds makes so much sense that in last year’s annual letter to Berkshire Hathaway shareholder’s Buffett said:
“My advice to the trustee [of my wife’s assets] 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. (I suggest Vanguard’s.) 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.”
We couldn’t agree more. The benefits of employing a high-fee money manager unfortunately do not accrue to the investor. For the great majority of investors, holding a diversified portfolio of low-cost index funds makes the most sense.
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