Warren Buffet is often looked to as a sagacious source of information, particularly those readying for retirement by looking to invest some of their wealth to build a more reliable nest egg. But in a recent op-ed, fellow investor Tim Armour points out why Buffett’s method of passive investing may not be as effective for the people who hang on his every word.
Buffet’s method of bottom-up investing has made good use of the S&P 500 passive index, and he regularly urges those that look ton him for advice to stick with these funds because of their low risk and high potential for gains. While low risk may be attractive to retirees, Armour as the chairman of Capital group argues that the unusual length of the current bull market has made many forget that once the market turns they become just as volatile as an active fund. For those preparing for retirement this does not help build a healthy portfolio.
Follow Tim Armour on LinkedIn.
Armour instead suggests that new investors not become so fixated on minimizing risk solely by looking through the passive index. Instead, Armour suggests that they do as he has done, and look to managers who are investing their own money into their funds. This willingness to sacrifice personal capital in order to see a fund grow isn’t just confidence, it’s an indicator the fund it set to grow.
Following this method, Timothy Armour found that he received returns that were 1.47% higher than the benchmark indexes on a per annual average after fund expenses were factored in.