CHICAGO (Reuters) – While it is hard to knock the advice of Warren Buffett, whose annual letter to Berkshire Hathaway Inc shareholders recently lofted down from the mountain of capitalism, some of his tips can be tweaked.
Among the many nuggets of wisdom in the Berkshire report was a recommendation from the company’s chairman to the trustee of his estate that 10 percent of the cash be invested in short-term government bonds and 90 percent in a “very low-cost index fund (Vanguard’s).”
Buffett is spot on about holding onto an index fund and avoiding the exorbitant fees of active managers. But we should look at his advice a bit more closely.
In an earlier Buffett blog on Fortune.com, the legendary investor cited the ticker symbol for the Vanguard 500 Index fund. The fund charges 0.17 percent in annual expenses and owns the top 500 U.S. stocks by market capitalization, such as Apple Inc, Exxon Mobil Corp and Google Inc. As of Friday, it was up about 2 percent year to date.
In line with Buffett’s penchant for penny-pinching and focus on long-term returns, I was wondering if you can find a better index fund. You can certainly find a cheaper fund that tracks the Standard & Poor’s 500 stock index.