What would Warren Buffett do? (WWWBD) This is a question any investor worth his or her salt should ask himself or herself regularly. I will try to answer that question in a series of posts using his own words.
.Invest In Index Funds
Index funds are mutual funds that mimic a specific benchmark. The most well known of these are the funds that hold stocks in the Standard and Poor's 500. Index funds were developed by the founder of the Vanguard Group and Buffett's fellow octogenarian, John Bogle. The best known of the index funds is the Vanguard 500 Index Fund. Here is what Buffett had to say about index funds in the 1996 Berkshire Hathaway annual report:
"Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges low fees."
Why does Buffett favor index funds? Again, from the 1996 annual report, he states:
"Those following this path are sure to best the net result (after fees and expense) delivered by the great majority of investment professionals. Seriously, costs matter"
The Vanguard 500 Index Fund, for example, charges 0.17% in fees and might represent a good choice for some people seeking low fees.
John Bogle puts another gloss on the use of index funds. In an interview at www.Bankrate.com, Bogle suggests that investors begin with a heavy emphasis on growth index funds and that a transition to bond index funds take place as you near or are in retirement in order to generate income.
(The writer of this blog owns shares in the Vanguard Index 500 and other Vanguard funds, including index funds).