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Big Name Investment Pros: Stock Index Funds Are Best

By John Morgan   |   Thursday, 29 May 2014 01:09 PM

Charles Schwab, Warren Buffett, Jim Cramer, Ben Stein and John Bogle have at least one thing in common — they all now think Americans should be using stock index funds to build their retirement savings.

Schwab, founder of the eponymous discount brokerage that helps investors buy individual stocks, appears to be the most recent convert to the passive approach.

According to MarketWatch, he recently said tracking the indexes is far better than stock picking.

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"There's somebody out there, I know, who can pick the best managers. It may not be me," Schwab said. "That's why I stick to index funds."

MarketWatch noted Schwab historically has been an advocate of stock trading.

"Sure, but he's also a smart businessman who knows how to talk up his own book. And that book of business increasingly is to promote passive investing through portfolio management services, not hotshot online trading tools," wrote MarketWatch retirement columnist Mitchell Tuchman.

"As businesses go, online trading had a good run. Now, hyper-efficient high-frequency players have squeezed the slow-lane Internet traders right off the road. If you're still day trading from a home computer, it's way past time to stop."

As for Jim Cramer, the host of CNBC's Mad Money, Tuchman offered a key quote from Cramer's book Stay Mad for Life.

"The job of an index fund manager is simply to make sure the fund matches the index" Cramer wrote. "These funds are universally cheaper than actively managed funds, and any index fund will consistently beat the vast majority of mutual funds, if only because the fees are so much lower."

Perhaps the most celebrated stock picker of them all, Warren Buffet, revealed recently his will advises the trustee to hold 10 percent in short-term government bonds and the other 90 percent in Vanguard's 500 Index Fund, which replicates the S&P 500 index, for his widow, MarketWatch reported.

In his annual letter to Berkshire Hathaway shareholders, Buffett wrote, "I believe the trust's long-term results from this policy will be superior to those attained by most investors."

Economist and author Ben Stein is also on record as saying indexing beats stock picking. In an appearance on The Wall Street Journal Live NewsHub, Stein said the superiority of index funds to individual stock selection has become "overwhelming," MarketRiders.com reported.

John Bogle, founder of the Vanguard fund family, has long been on record as advocating index funds rather than individual stocks.

"You should start out heavily invested in equities. Hold some bond index funds as well as stock index funds. By the time you get closer to retirement or into your retirement, you should have a significant position in bond index funds as well as stock index funds," he told Bankrate.

Editor's Note: 250% Gains Bagged Using Secret Calendar (See Video)

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