During this interview with CNBC, Warren Buffett explained why the trick is not to pick the right company for most investors. Here’s an excerpt from the interview:
Buffett: I think it’s the same thing that makes most sense practically all of the time, and that is to consistently buy an S&P500 low cost index fund.
Keep buying it through thick and thin, and especially through thin.
Because the temptations gets… when you see bad headlines in newspapers, maybe to say well maybe I should skip a year or something. Just keep buying.
American business is going to do fine over time. So you know the investment universe is going to do very well. The Dow Jones industrial average went from 66 to 11,497 in one century.
And since that century has ended, it’s more or less doubled again. American business is going to do well.
The trick is not to pick the right company, it’s to be… because most people aren’t equipped to do that. And plenty of times I make mistakes. The trick is to essentially buy all the big companies through the S&P500, and to do it consistently, and to do it in a very, very low cost way.
Because costs really matter in investments.
If returns are going to be 7% or 8% and you are paying 1% through fees, that makes an enormous difference in how much money you have on retirement.
You can watch the entire discussion here:
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