Tags: Buffett | Index | Funds | Retirement

Buffett: Index Funds Make Best Retirement Sense Most of Time

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By    |   Monday, 15 May 2017 09:10 AM

Investment guru Warren Buffett advises savvy investors that index funds make the best retirement sense “practically all the time.”

"Consistently buy an S&P 500 low-cost index fund," Warren Buffett told CNBC's On The Money in an interview recently. "I think it's the thing that makes the most sense practically all of the time," he said.

"Keep buying it through thick and thin, and especially through thin," the chairman and CEO of Berkshire Hathaway said.

"The temptation when you see bad headlines in newspapers is to say, ‘Well, maybe I should skip a year or something.’ Just keep buying," he said. "American business is going to do fine over time, so you know the investment universe is going to do very well," he said.

Buffett says an index fund is a way to avoid the risk of picking individual stocks.

"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," he added.

"Costs really matter in investments," said Buffett, who in the past has taken aim at costly funds. "If returns are going to be seven or eight percent and you're paying one percent for fees that makes an enormous difference in how much money you're going to have in retirement."

To be sure, a survey last year by financial website GoBankingRates found that about a third of Americans have no retirement savings at all. Another survey by the Economic Policy Institute puts that number at nearly half.

What’s more, even those who are saving aren’t putting away nearly enough. The median amount that the average American family has saved is just $5,000. More than half of Americans have less than $10,000 saved, and 70% have under $50,000.

That’s for all adult Americans, though. Obviously, millennials who are just entering the workforce will have a lot less saved up than baby boomers who are just about to leave it. So what’s the median retirement savings for couples ages 50 and up? According to the EPI survey, it’s only about $17,000.

Meanwhile, the average balance in a 401(k) defined-contribution account at Fidelity Investments hit a record $95,500 in the first quarter, up more than 9 percent from a year earlier, the company recently reported. 

Investment performance gets credit for 70 percent of the advance, and 30 percent was due to contributions from employees and employers. Those combined contributions also hit a record high, at 12.9 percent.  A record 27 percent of workers in a Fidelity plan increased their contributions, as a percentage of their salaries, over the past 12 months, Bloomberg reported.

Those employees didn't all suddenly wake up and get serious about saving. The increase is also due to a feature some large employers have added to plan designs to bump up savings rates.

Auto-escalation, as it's called, often used in concert with automatic enrollment of new hires into the company 401(k), nudges employee contribution rates up one percentage point a year until they reach a cap. Many employers leave it to workers to opt in to auto-escalation, but 16.1 percent of Fidelity's plans make it automatic on enrollment in a plan. That's up from 14.4 percent in 2016's first quarter.

(Newsmax wires services contributed to this report).

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Investment guru Warren Buffett advises savvy investors that index funds make the best retirement sense “practically all the time.”
Buffett, Index, Funds, Retirement
Monday, 15 May 2017 09:10 AM
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