Buffett’s Favorite Investment Strategy Is Wrong, Writes Tim Armour

Warren Buffett isn’t one to shy away from putting his investing knowledge to the test, and he did just that when he challenged other hedge fund managers to a $1 million contest to see who could get the greatest return on an investment. The winner would receive the sum to the charity of their choice.

Warren Buffett hopes to pull off a win by investing solely in the S&P 500 passive index, which has proven beneficial for him in the past, but fellow investor Tim Armour sees flaws in that logic.

In a recent op-ed, Timothy Armour pointed out that reliance on low-cost funds may be attractive in the current bull market, especially for those planning for retirement. They are in no way safer from active funds, and are susceptible to the same kind of volatility one could encounter beyond this index.

By choosing passive funds over active ones, inexperienced investors may miss out on an opportunity to reap big returns. Which is why Timothy encourages new investors to consider the looming bear market that is sure to follow the unusual length of this bull market. Being able to get positive returns in either investment environment is ideal, and for that Armour has a different set of criteria when it comes to picking a fund.

While not guaranteed for success, no method of investment can be, Armour suggests all investors instead seek funds where expenses are relatively low and the financial investment of the manager is higher than average. These two criteria, Armour argues, filters out unscrupulous managers that seek to deceive investors and brings attention to those committed to having their funds grow.

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