Legendary investor Warren Buffett offered simple investing advice during an appearance on CNBC’s “Squawk Box” that followed the release of Berkshire Hathaway Inc.’s annual shareholder letter. Buffett’s advice focused on an investment strategy for his wife Astrid, guided by the instructions he had laid down in his will.
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In the interview, he said Berkshire shares would go to philanthropy. Some of the money would go directly to his wife and some to a trustee. He told the trustee to put 10% of the money in short-term government bonds and 90% in a cheap S&P 500 index fund.
CNBC’s Becky Quick emphasized that it was the first time Buffett discussed the details publicly. Buffett said, “I laid out what I thought the average person who is not a stock expert should do. And my widow is not going to be a stock expert. I want to make sure she gets a decent result.”
The strategy that Buffett has outlined is not just for his family, but applies to any investor looking for reliable returns without the need for expert knowledge. He recommended using the 10% allocation to short-term government bonds as a cushion during market downturns, allowing withdrawals without having to sell shares at potentially low prices.
The S&P 500 index includes a wide range of stocks, including major companies such as Apple Inc., Microsoft Corp. and Google parent company Alphabet Inc. The appeal of index funds lies in their passive investment strategy, which involves low turnover rates. This efficiency helps keep fees and taxes low.
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The performance of index funds is linked to the performance of the companies within them, creating a balanced investment as gains in some stocks can offset losses in others. For example, if the shares of one company in the index rise 3% and another company falls 2%, the net increase would be 1%, providing a simplified and effective approach to investing in the broader market.
Buffett has long advocated the benefits of index funds and emphasized his views as far back as the 1993 annual shareholder letter.
“For example, by investing periodically in an index fund, the unknowing investor can actually outperform most investment professionals,” he wrote in the letter. “Paradoxically, when ‘dumb’ money recognizes its limitations, it is no longer stupid.”
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Buffett’s endorsement of index funds continued in the 2016 shareholder letter, in which he shared insights he gained from decades of providing investment advice. He consistently recommended a low-cost S&P 500 index fund, noting that wealthy people often believe their money should give them access to superior investment options.
Buffett criticized this mentality, noting that financial “elites” have difficulty accepting that a product that benefits both small and large investors could be the optimal choice. He explained that this reluctance often leads to significant financial waste, estimating that the quest for exclusive investment advice has cost the elite more than $100 billion over the past decade.
Buffett’s insight provides a foundation for long-term investing, but the world of finance can still feel complex, especially for beginners. The ever-changing market and the sheer range of options can be overwhelming. Therefore, consulting a qualified financial advisor is helpful. They can tailor Buffett’s core principles – such as low-cost index funds and diversification – to your unique circumstances and risk tolerance. Even the savviest investors benefit from a second pair of eyes.
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This article Warren Buffett Reveals His Will’s Instructions to Invest 90% of His Wife’s Inheritance – ‘My Widow Won’t Be an Expert on Stocks’ originally appeared on Benzinga.com
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