I attended a fascinating training course over the weekend to prepare me for participation in a youth mentorship programme. It reminded me there is a very clear limit to my circle of competence – and the best contribution is often just knowing when to call in the professionals. Financial journalism is a lot like that. Broad brush strokes are helpful, but it is just as valuable to stay away from specifics.
My colleague Jackie Cameron does this brilliantly both by sharing her own experiences and passing on the recommendations of the very best in the field. Today’s contribution is an excellent example.
Jackie writes: “As a personal finance journalist, I often receive requests from friends and readers asking me for tips on where to invest their money.
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Individual advice is a tricky business. For starters, you could get things wrong, causing more harm than good. As I highlighted recently, I have made my own costly mistakes – choosing the wrong RA products after being taken in by marketing smoke-and-mirrors.
There are also laws around giving financial advice without being suitably qualified or registered with regulators. So any investment ideas have to be couched in careful wording.
However, I couldn’t resist passing on a little nugget from Warren Buffett that an S&P 500 index tracker is the best default option when I got an email from a former colleague asking me for suggestions.
My Cape Town friend has been toying with the idea of resettling in Scotland so it makes sense to add some geographic diversification if South Africa isn’t in her long-term plans. But, with a world of opportunities, where does she start?
My immediate thought was to share with her the wisdom that the so-called Oracle of Omaha imparts periodically when asked for investment ideas.
The Berkshire Hathaway CEO has ensured phenomenal returns for decades. Buffett’s 2017 letter to shareholders shows that his company has generated a compound annual gain of around 20% – compared to just under 10% for the S&P 500 with dividends included – over more than 50 decades.
Yet, Buffett doesn’t think Berkshire Hathaway is the best bet. He has publicly stated that an investment in the S&P 500, which is a basket of the largest public companies in the US, is his choice for his wife’s assets after his death.
“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 explains in a recent interview with CNBC. He notes that even he finds it hard to identify winning stocks.
The next challenge is: How do you invest in the S&P 500? Again, Buffett has provided guidance: a Vanguard ETF (Exchange Traded Fund).
Vanguard is the firm started by mutual fund guru Jack Bogle. It has a reputation for low charges. As Buffett and other investment heavyweights have emphasised: the key to massaging returns upwards is to keep investment costs to a minimum.
There are a number of ways to buy into the Vanguard S&P 500 ETF, for example through a stockbroker. Vanguard has just made it easier for UK investors to invest £100 and upwards monthly in its Buffett-endorsed index-tracker by launching a direct-to-consumer platform in Britain.”
Ahead of this year’s Berkshire Hathaway AGM, after welcoming him Warren Buffett asked John Bogle to stand up so that the 20,000 or so in the arena could cheer the man who “has saved investors billions and billions of dollars.” Privately he probably also thanked Bogle for creating a vehicle that ensures if Warren goes first, Astrid Buffett will see out her days without a day of financial concern. Respect.
