Lessons From Warren Buffett: Why Index Funds Are Good for a Certain Type of Investor

Investing is not just about return, it is also about peace of mind, and Warren Buffett sees the value of index funds, such as those tracking the S&P 500, in accomplishing that goal, especially for inexperienced investors that might be prone to worry, or easily convinced by others to take on risky investments.

“What is the best investment, meaning one that there would be less worry of any kind connected with and less people coming around and saying, ‘Why don’t you sell this and do something else?’ and all those things,” Buffett explained at the 2017 Berkshire Hathaway Annual Meeting. It is even an investment he would recommend for his wife after she inherits his assets, not that she would be selling her Berkshire Hathaway stock. “The object is not to maximize. It doesn’t make any difference whether the amount she gets doubles or triples or anything of the sort. The important thing is that she never worries about money the rest of her life.”

Speaking of money and worry, Buffett tells the story of his elderly aunt.

“I had an Aunt Katie here in Omaha, who Charlie knew well, and worked for her husband, as did I. And she worked very hard all her life. And had lived in a house she’d paid, I think, I don’t know, $8,000 for at 45th and Hickory all her life. And because she was in Berkshire, she ended up, she lived to 97, she ended up with, you know, a few hundred million. And she would write me a letter every four or five months. And she said, ‘Dear Warren, you know, I hate to bother you. But am I going to run out of money?’ And… I would write her back. And I’d say, ‘Dear Katie, it’s a good question because, if you live 986 years, you’re going to run out of money.’”

Buffett’s full explanation on index funds

See the complete Lessons From Warren Buffett series

© 2021 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

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