@johnb974 wrote:
Tell that to the people who lost everything when the market crashed in 2008. Tell that to the Bernie Madoff investors. Even though the SEC said he was fine, until it all collapsed.
Warren Buffett, who some say is the greatest investor in all of history, recommends to the average person and to his wife also upon his future death that they simply buy a index fund that captures the entire stock market. He said an S&P 500 index fund would do. There are others like a "total stock market fund" that capture the whole stock market.
It's because he feels most money managers cannot beat the stock market, which averages 9-10% in gains a year over the long-term. He's told his wife to not even buy his OWN fund, Berkshire Hathaway, after he dies, because he won't be alive to pick its stocks. LOL!
A lot of those who lost out in 2008 probably:
a.) sold when the market crashed
b.) were not diversified - Buffett's recommendation prevents this, because you're essentially buying the entire stock market, instead of a single stock...or two...or three...or four. Mutual funds do the same thing (by buying 100's of stocks in the fund to diversify), but he doesn't recommend them, because he thinks most money managers cannot beat the market. So, again, he just says to buy the market through a very broad index fund. That way, you'll average 9-10% over many years. Sure, if you pick a GREAT fund with a great set of stock pickers, you can beat the market...but it can be hard to do that sometimes.
c.) may have been in very risky investments like your Bernie Maddoff example
I read or heard somewhere that if someone shows you investment gains on a chart and they ALWAYS go up year after year after year, there's a good chance it's a scam or Ponzi scheme. Even the best money managers usually have bad years. I remember hearing the Madoff story, I think, where he claimed earned his clients x-dollars every single year. There were like NO BAD years. And I think they were outsized gains too. That could be very suspicious. Following Buffett's advice avoids all of this. You can just buy an index fund representing the entire stock market and invest $100 (or whatever) into it every month.
By the way, I read most of Maddoff's victims have now recovered most of their principal. I think the NY Times had a story on this. Many people invested millions with him. The really sad part is that they are just now getting the principal back only! Had they had the money available to them, they'd have made so much more money over the past x number of years they were without it.
Edited 3 time(s). Last edit at 07/10/2019 06:34AM by shoptastic.