Financial Insights & Things to Think About

Good read! From CNBC & Warren Buffett

Posted by Nicole Gopoian Wirick | Jun 15, 2020 | 0 Comments

Warren Buffett: Most people shouldn't pick individual stocks—here's how to invest instead Published Fri, May 22 20209:00 AM EDT Updated Fri, May 22 202012:14 PM EDT Kathleen Elkins@kathleen_elk

https://www.cnbc.com/2020/05/22/warren-buffett-most-people-shouldnt-pick-single-stocks.html

Investing legend Warren Buffett wants you to keep it simple and trust index funds when it comes to investing your money. 

“I don't think most people are in a position to pick single stocks,” he said during the Berkshire Hathaway annual shareholders meeting, which was held virtually this year from Omaha, Nebraska. “A few [are], maybe, but on balance, I think people are much better off buying a cross-section of America and just forgetting about it.”

In other words, buy a low-cost index fund — Buffett recommends the S&P 500, which holds 500 of the largest companies in the U.S., from Google to Disney to ExxonMobil — and hold onto it for a long period of time. 

Using index funds is a passive investment strategy that allows you to take advantage of the success of major corporations without the risks associated with buying individual stocks. It's nearly impossible for the average investor to consistently pick the right stocks to “beat the market.” Studies show you're better off owning the whole market with a low-cost index fund. This also removes the significant company risk of an individual stock drastically underperforming the market.

Rather than owning just one or a few stocks, you're better off owning a bunch of different companies. Some of your shares will likely take off, while others will remain neutral and some will drop. History shows you should see favorable long-term results: The average annualized total return for the S&P 500 index over the past 90 years is around 10% before adjusting for inflation.

Buffett isn't the only expert who champions index funds. Certified financial planner Peter Mallouk says that if you are ready to dip your toe into the markets, “you should put your money in just one thing: the S&P 500.”

“It's the lowest cost investment that exists,” Mallouk tells CNBC Make It. “You can buy it at a discount custodian, like a TD Ameritrade, Fidelity or Charles Schwab, where the trading fees are exceptionally low. And with those 500 stocks, you now own about 80% of the market capitalization of the entire United States.” In other words, an S&P 500 fund covers about 80% of the U.S. stock market, so it's an easy and affordable way for investors to capture core U.S. stock market performance.

Plus, “you have global exposure,” Mallouk says, “because these companies get a lot of their earnings overseas: McDonald's has shops in China, and Walmart has locations in Europe. So you wind up with a low-cost, diversified portfolio that's invested in the global economy.”

In short, if you're looking for a good, reliable place to invest your money, go with low-cost index funds. And stay the course, even when you see market fluctuations or a bad headline, Buffett says. “Keep buying it through thick and thin, and especially through thin. … American business is going to do fine over time, so you know the investment universe is going to do very well.”

About the Author

Nicole Gopoian Wirick

Hello! Financial planning with a personal touch. One of Nicole's greatest joys is developing a relationship with her clients, who have become a meaningful part of her life. Nicole Gopoian Wirick, JD, CFP® founded Prosperity Wealth Strategies to help clients define and achieve prosperity. Nicol...

Comments

There are no comments for this post. Be the first and Add your Comment below.

Leave a Comment

Contact Us

Prosperity Wealth Strategies is committed to answering your questions about your financial planning goals. We offer a complimentary consultation at your convenience. Contact us today to schedule an appointment.

Let's Connect

Office: (248) 963-0568
Cell: (248) 701-7126
[email protected]
36400 Woodward Avenue
Suite 128
Bloomfield Hills, MI 48304

Site Design Chris Ward Studio, Photos: Laurie Tennent Photography, Unsplash: phil-hearing, hosein-emrani, jovaughn-stevens, remi-valle, samuel charron, annie-spratt, tim-mossholder, sasha-freemind, katherine-auguste, quino-al,lerone-pieters, alec-favale, ante-hamersmit, lo-lo, xps, bruno-nascimento, faith-atlas, kate-che, max-ven-den-oetelaar, josh-hoehne, lars-schnieder, alex-azabache

Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
Disclaimer

Menu