Warren Buffett: Why Index Funds Trump Hedge Funds
I am quoted in a Kiplinger article: “Warren Buffett: Why Index Funds Trump Hedge Funds”
Buffett has long been a critic of excessive fees, notes David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business who studies Buffett and is a Berkshire shareholder.
“Buffett said at a recent Berkshire annual meeting, when he asked a hedge fund manager why he charges ‘2 and 20,’ the response was ‘because I can’t get “3 and 30,” Kass says.
“Warren Buffett has recommended that when he is no longer here, his wife should invest 90% of her money in a low-cost S&P 500 index fund such as that offered by Vanguard. The other 10% would be invested in Treasuries to provide liquidity,” Kass says.
“In order for hedge funds to justify their ‘2 and 20’ fee structures, their rates of return after fees must exceed what any investor can earn from a low-cost S&P 500 index fund,” Kass says. “Their fee structures makes this extremely difficult to achieve over time.”
