Mr. Warren Buffet, a veteran investor, surprised the world by confidently claiming that he would rather invest in an S&P 500 passive index fund than invest in the hedge fund. He even went ahead to wager a million dollars to charity in the event that his investment in the passive fund failed to fetch as much as hedge funds fetch. Among the people who disagreed with Buffer was Mr. Tim D. Armour, another respected investment guru.
Tim acknowledged that Warren’s reputation of getting returns from bottom-up investment approach is good in that it is low cost. He also acknowledged that Buffet’s claim had a percentage of truth in it for there exists unscrupulous hedge fund managers who give investors a raw deal. Tim argued that even though he has a lot of respect for Mr. Buffet, the veteran had gotten it wrong in several fronts.
According to Tim, passive investments are not as safe as they appear from the surface. He argued that these funds place investors at a risk of losing it all during down markets. He noted that investors are misguided to think that the funds are the safest of all investment paths, resulting to trillions of dollars being pumped into it in investments. He noted that about 50 percent of passive fund investors are not aware of the risks that come with the fund. This naivety is largely contributed by the sheer fact that the funds have enjoyed a good run of favorable markets. This ought not to be confused for risk-freeness according to Tim and more information click here.
In Tim’s assessment, there is no clear way to confirm, which between the hedge and passive funds would yield higher returns. He, however, noted that investing in reputable hedge funds would guarantee an investor higher yields compared to an equal investment in a passive fund. The Growth Fund of America and The Investment Company of America are some of the reputable funds mentioned by Tim.
About Tim Armour
Mr. Timothy D. Armour studied at Middlebury College and acquired a bachelor’s degree in economics and Timothy’s lacrosse camp.
Armour made his debut in the investment industry in 1983. Since then, he has worked for organizations, such as The Capital Group Companies, Inc. and Capital Research, and Management Company.