Is Warren Buffett's Advice Right for You?

by on Feb 29, 2016 Categories: etfs, wealth management

One of the world’s wealthiest and most well-known investors, Warren Buffett, is often asked how the average person should invest. His most common advice is to invest in a low cost S&P 500 index fund because of its propensity to go up over time for investors with a long time horizon. This is a great approach for investors with less than $50,000 and is a superior alternative to the standard 5% load fee mutual funds.  

The example below illustrates how the 5% load fee and a standard 1.5% mutual fund expense ratio will erode an investor’s returns over time. This example assumes the mutual fund and S&P 500 index returns are the same before fees, despite the fact that ~80% of stock-based mutual funds do not perform as well as the S&P 500. A $50,000 investment compounded at the S&P 500’s 13.3% historical annual return would appreciate to over $3.8 million over 35 years. However, the same $50,000 investment in mutual funds over 35 years will only result in $2.35 million – a difference of nearly $1.5 million.

Aggressive investors with more than $50,000 and a long time horizon can realize higher returns from a more strategic approach developed by a professional investment manager. By applying Warren Buffett’s investment principles, enhanced with global diversification and prudent use of leverage, Meridian Investment Partners has established a track record of outperformance that can result in superior returns over time. This type of outperformance can help investors achieve significantly more from their investments than the passive approach suggested by Warren Buffet. 

How do you decide which approach is right for you? Should you select low cost ETFs that are designed to replicate market performance, or should you enlist the services of an active asset manager? Here are a few questions you should ask yourself to decide:

  1. How much money do I have to invest? 
  2. How long do I plan on keeping this money invested?
  3. Am I a conservative or aggressive investor?
  4. Do I want my investments to perform on par with the stock market or am I looking for potential upside gains and downside protection?