Last year Warren Buffet invested $1 million into an S&P passive index fund with the intent to prove that he could gain better returns than a group of hedge fund managers, and it looks like he will. In many ways, Mr. Buffet’s investment strategy is correct, look for simple, low-cost investments that can be held for the long term. Mr. Buffet believes this can be found in passive index funds. However, passive index returns aren’t always the safest path, especially in a down market. Passive index funds still expose investors to 100 percent of the volatility and losses in a down market, something most investors aren’t aware of. Doing better than the market during bad times is a key component to producing positive long-term results.
Of course, there’s no simple way to determine which funds will do well. To identify suitable funds, investors should look for two things – low expenses and high manager ownership. Get rid of any funds carrying high management fees and look for those where hedge fund managers are investing their own money into the funds. This will ensure high returns and sound investments for the long term.
Tim Armour is the chairman and principal executive officer of Capital Group, a firm that is ranked as one of the world’s oldest and largest investment management firms. Capital Group is widely known for its range of over 40 mutual funds offered through its subsidiary, American Funds. Mr. Armour has 34 years of investment experience, all with the Capital Group. He began his career with Capital Group in 1983 when he joined The Associates Program. He then became an equity investment analyst. In 2015 he was elected Chairman by the board of directors. Mr. Armour also acts as an equity portfolio manager for the firm. He holds a bachelor’s degree in economics from Middlebury College.