Warren Buffett utilizes a “bottom-up” investment strategy, pouring most of his analysis into reviewing companies based on specific criteria, and creating a portfolio that will endure for the long-term. His promotion of index-based, passively managed funds has become ubiquitous investment advice that is often taken at face value. It is true that actively traded funds often fail to beat indexed funds over time, usually due to being over-traded and requiring out-sized fees. What has not been discussed enough however, is the volatility that index funds can introduce to an investor’s portfolio. There are no protections in the event of a down market. The American economy has shown a historically long bull market, but markets can change – and fast!
Beating the market over the long term is not random as some index gurus might tell you. Capital Group has managed to beat the market by 1.47% over its 86-year history. To ensure your portfolio is durable and will provide enough to ensure a comfortable retirement, look to two filters to make safe investments: low expenses and high manager ownership. A fund that the manager has the faith to invest his own money in is one that they will not want to see fail.
Timothy Armour is Chairman and Equity Portfolio Manager of Capital Group Companies. He came to the company in 1983 after completing his education at Middlebury College, receiving a bachelor’s degree in economics. After starting in the Associates Program at Capital, he is now a 34-year veteran in fund management and equity investment.
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