Buffett Believes The Greatest Investment Moves Are Met With Yawns - How Index Funds Really Can Build Wealth

Warren Buffett, arguably one of the most successful investors of the 21st century, has amassed a wealth of $131 billion, making him the seventh richest person on this planet as of April 30.

Buffett’s Sage Advice: Don’t Take Unnecessary Risk

During the annual shareholders meeting in 2017, Buffett reiterated his long-standing belief in the simplicity of investing, stating, “If they told everybody what a simple game [investing] was, 90% of the income of the people that were speaking would disappear.” Despite his vast success in owning businesses, Buffett has consistently emphasized the value of a diversified investment portfolio, advising against unnecessary risks.

Buffett’s philosophy underscores the significance of consistently investing in low-cost index funds, especially during market volatility. His recommendation to “consistently buy an S&P 500 low-cost index fund” has resonated with both seasoned investors and beginners alike.

“Keep buying it through thick and thin and especially through thin,” Buffett emphasized in 2017, highlighting the importance of discipline and perseverance in wealth accumulation. “I think it’s the thing that makes the most sense practically all of the time,” Buffett added.

ETFs: The Simple Passive Investment Tool

Investing in S&P 500 index funds like SPDR S&P 500 ETF Trust SPY is one of the easiest and most effective strategies. It allows investors to benefit from the soaring stock market while remaining shielded from the unnecessary risk that mid- and small-cap companies are typically exposed to.

“The trick is not to pick the right company, the trick is to essentially buy all the big companies through the S&P 500 and to do it consistently and to do it in a very, very low-cost way,” Buffett stated.

Exchange-traded funds have become popular among investors, largely due to their cost-effectiveness. ETFs typically have lower expense ratios, making them an attractive option for cost-conscious investors. These funds are designed to track the performance of a specific index, commodity, or basket of assets, offering diversification at a fraction of the cost of actively managed funds.

The appeal of ETFs is further enhanced by their liquidity, as they can be bought and sold throughout the trading day at market prices, providing investors with flexibility and accessibility. Buffett’s endorsement of index funds as the holy grail in this era of uncertainty reflects his belief in their long-term potential to generate wealth steadily.

“Costs really matter in investments,” Buffett added. “If returns are going to be seven or eight percent and you’re paying one percent for fees, that makes an enormous difference in how much money you’re going to have in retirement.”

Amidst fluctuating market conditions and economic uncertainties, Buffett’s advice serves as a beacon of stability for investors seeking to navigate the complexities of the financial landscape.

“The temptation when you see bad headlines in newspapers is to say, well, maybe I should skip a year or something. Just keep buying,” Buffett said further during the 2017 annual shareholders meeting. “American business is going to do fine over time, so you know the investment universe is going to do very well.”

A New Approach To The Index Fund Model

Cityfunds offers a unique twist on the traditional index fund model by focusing on real estate investments in specific markets. Each Cityfund is a diversified portfolio of Home Equity Investments (HEIs) in a particular city, allowing investors to gain exposure to that market’s growth potential.

As the value of the properties within a Cityfund appreciates, so should the value of the fund’s shares. This innovative approach unlocks the $32.6 trillion home equity market, which has grown by an impressive 211% since 2013, making it accessible to individual investors for the first time. By investing in Cityfunds, individuals can benefit from the potential upside of the real estate market while enjoying the diversification and risk-adjusted returns that come with investing in a portfolio of carefully vetted properties.

Some of the markets available to invest in through Cityfunds are Miami, Los Angeles, Dallas, Austin, Phoenix and more high-growth cities. Click here to explore Cityfunds’s offerings.

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Warren Buffett | Photo courtesy: Flickr