Over the past several decades, Warren Buffet has turned his primary business, Berkshire Hathaway, into one of the top businesses in the world. He has also developed the reputation as being one of the best investors and financial managers of all time. Buffet has continued to provide consistent advice about investing wisely. One part of this has been to focus on investing in low-cost index funds, as opposed to more expensive hedge and mutual funds.
Over the past few years, many people have spent a lot of time analyzing a bet that Buffet has made with a few fund managers. Buffet bet that he could receive a better rate of return by investing in an index fund than someone would receive if they invested in a mutual fund. Finally, a few years after the bet was made, the dust settled and Buffet was concluded to be the winner.
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While Buffet is clearly an expert in the field and won the bet, some people are still not sure that his strategy is always the wisest. One person who has spoken out against the strategy is Timothy Armour, who is a principal of the Capital Group. Armour has spent over 20 years working for the Capital Group in a variety of roles, including asset and portfolio management.
Armour stated that part of the reasons why Buffet was successful in the bet was that the stock market did very well overall in that time period. The risk of investing in the stock market index funds is that there is no downside protection. On the other hand, hedge and mutual funds have the ability to hedge against risks and downside. Armour further pointed out that over the past 20 years, his fund’s average rate of return is more than 1% higher than the stock market.
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