Most fund managers revere Warren Buffett for his investment track record. But this admiration is not mutual, as became evident in his 2013 Annual Letter to Shareholders. He revealed that his will instructs the trustees for his wife’s bequest to “put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. “I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers.”
His annual letter to shareholders is a must-read for all investors, not least because he usually offers simple but powerful insights on long-term investment success: His 2015 letter is no exception, and we highlight some of his observations below:
On the risk of holding cash for the long term“Our investment results have been helped by a terrific tailwind. During the 1964-2014 period, the S&P 500 rose from 84 to 2,059, which, with reinvested dividends, generated the overall return of 11,196%. Concurrently, the purchasing power of the dollar declined a staggering 87%. That decrease means that it now takes $1 to buy what could be bought for 13¢ in 1965 (as measured by the Consumer Price Index).
It has been far safer to invest in a diversified collection of American businesses than to invest in securities – Treasuries, for example – whose values have been tied to American currency. That was also true in the preceding half-century, a period including the Great Depression and two world wars. Investors should heed this history. To one degree or another it is almost certain to be repeated during the next century.”
At 10X, we invest your retirement savings according to your time horizon (expected retirement age). Those more than 5 years from retirement own the 10X High Equity Portfolio, to maximise their long-term return. Those within 5 years of retirement own portfolios with gradually declining equity exposure to preserve their capital.
On reacting to market volatility“Stock prices will always be far more volatile than cash-equivalent holdings. Over the long term, however, currency-denominated instruments are riskier investments – far riskier investments – than widely-diversified stock portfolios that are bought over time and that are owned in a manner invoking only token fees and commissions.
If the investor, instead, fears price volatility, erroneously viewing it as a measure of risk, he may ironically, end up doing some very risky things. Recall, if you will, the pundits who six years ago bemoaned falling stock prices and advised investing in “safe” Treasury bills or bank certificates of deposit. People who heeded this sermon are now earning a pittance on sums they had previously expected would finance a pleasant retirement. (The S&P 500 was then below 700; now it is about 2,100.) If not for their fear of meaningless price volatility, these investors could have assured themselves of a good income for life by simply buying a very low-cost index fund whose dividends would trend upward over the years and whose principal would grow as well (with many ups and downs, to be sure).”
At 10X, we offer one simple, optimal life-time investment solution, based on your investment time horizon, not on how the underlying markets have performed. As we offer just this one solution, you will not be tempted to react to market volatility.
On bad investment habits“Investors, of course, can, by their own behaviour, make stock ownership highly risky. And many do. Active trading, attempts to “time” market movements, inadequate diversification, the payment of high and unnecessary fees to managers and advisors, and the use of borrowed money can destroy the decent returns that a life-long owner of equities would otherwise enjoy. Indeed, borrowed money has no place in the investor’s tool kit: Anything can happen anytime in markets. And no advisor, economist, or TV commentator – and definitely not Charlie nor I – can tell you when chaos will occur. Market forecasters will fill your ear but will never fill your wallet.”
10X uses index funds to exclude “active trading’, and a time-driven portfolios to avoid “market timing”. Our portfolios are highly diversified (by asset class, geography and currency) and our fees are very low. We do not use debt, and we do not make or listen to market forecasts. Why – because our goal is to give you a fuller wallet at retirement.
On the danger of asset consultants“Huge institutional investors, viewed as a group, have long underperformed the unsophisticated index-fund investor who simply sits tight for decades. A major reason has been fees: Many institutions pay substantial sums to consultants who, in turn, recommend high-fee managers. And that is a fool’s game.
There are a few investment managers, of course, who are very good – though in the short run, it’s difficult to determine whether a great record is due to luck or talent. Most advisors, however, are far better at generating high fees than they are at generating high returns. In truth, their core competence is salesmanship. Rather than listen to their siren songs, investors – large and small – should instead read Jack Bogle’s The Little Book of Common Sense Investing.”
At 10X, we encourage our clients and investors to invest with us directly, without the use of advisors. We can do this because our products embed the essential advice you need, and our reliable and realistic planning tools, enable you to make informed decisions about your investments.
