Whenever the Berkshire Hathaway annual report goes public, it’s read over by financial analysts with a fine toothed comb. It makes sense. Many of those reading the report hope they can find some insight that can give them an edge in their own investing. The funny thing is, you really don’t have to look very hard to find the important investing advice that Buffett believes most people should follow. This is because he puts it out there for everyone to see as bright as day. The question is, will most people follow it?
As part of the 49th Berkshire Hathaway annual report that came out earlier this month, Warren Buffett wrote that he has given instructions to his wife on what she should do with the money she inherits when he dies. One might think that the instruction might get quite complicated since she’ll be inheriting money from one of the richest men in the world. The truth is that the advice is actually quite simple. Warren Buffet want his wife to invest 90% of her inheritance into a low-cost S&P 500 index tracker. He also advised that she should invest the remaining 10% into short-term government bonds. That’s it. Nothing fancy, but still sound financial advice.
Studies have shown time and again that there are few fund managers who are able to outperform the S&P 500 over extended periods of time. With the knowledge that the vast majority of active fund managers will return less money than an S&P 500 index tracker fund while charging more in fees, the advice is really nothing more than common sense. This is the way that Buffett believes most people should invest. It’s how one of the best investors in the world wants his own wife to invest when he’s gone.
The problem for many with this advice is that it’s rather boring. There isn’t much excitement day to day when 90% of your money is in index funds with the other 10% in government bonds. It lacks any type of sexiness, at least in the short term. What it lacks in excitement today will be paid back during retirement when the amount of money in the retirement fund should create a great deal of excitement.
That will be the challenge for many people. In many ways, boring can be what brings you the best financial returns, but it’s not something that you can brag about to your friends when you get together. So the question is, do you listen to the sound advice of one of the richest men in the world even though it’s boring? Or do you try something more exciting that will likely leave you with much less in retirement? The choice is yours.