Warren Buffett is a long-time proponent of achieving better returns by investing in a simple, low-cost index fund that follows the S&P 500. Tim Armour agrees with him that most active fund managers don’t “earn their keep” as they charge excessive fees and still don’t beat the market. However, he thinks Mr. Buffett is painting active funds with too wide of a brush.
Mr. Armour says that there are active funds that have low fees, don’t trade excessively, and do beat the market. He says that the best way to find a good active fund is to look for ones where the hedge fund manager has a large amount of their own money in it which incentives them to manage the fund well. He also says the biggest overlooked problem with passive investing in the S&P 500 is that there is no protection when stocks go into a bear market.
Tim Armour is the Chairman and CEO of Capital Group. Capital Group is one of the oldest and most established financial services company in the world, with over $1.4 trillion in assets under management. Mr. Armour has spent his entire professional career with Capital Group and worked his way up the ladder to his current role at the company.
Mr. Armour has made the argument many times that you don’t need to settle for average returns. He says that investors should do a lot of research into different actively managed funds that beat the market because in the long run that is how they will make the most in returns.
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