Buffett’s advice to wife — and you
Why billionaire thinks it’s better to buy a stock index fund than company shares
“There’s no way if she holds the S&P ... she (won’t) have all the money she can possibly use.” Warren Buffett, speaking about his wife, Astrid Menks
Nothing about Berkshire Hathaway’s giant shareholder meetings is like other corporate events.
And that was evident again Saturday in Omaha during a poignant moment. CEO Warren Buffett was asked about whether he would tell his widow to buy a stock index fund rather than shares of the company that made him the world’s fourth-richest man.
It’s a subject Buffett has addressed before, and one where the 86-year-old investor differs with longtime partner and Berkshire Vice Chairman Charlie Munger, who says he would tell his heirs to keep Berkshire shares.
The question was an unusually personal twist on advice Buffett has always given: That most investors are better off buying lowcost mutual funds that index, or closely track, the holdings and returns of the Standard & Poor’s 500-stock index.
Those funds let small investors share in the gains of the U.S. economy, whose largest companies dominate the index. They also allow those investors to avoid the high costs of stock-brokerage commissions and financial-planning fees that eat into returns, as well as the risks of investing in individual companies that may choose less-competent leaders or run into problems.
Buffett’s wife, Astrid Menks, is unlikely to face the decision whether to hold Berkshire or mutual funds since Buffett reiterated that he will give away his Berkshire holdings in his will. They comprise the vast majority of his $75 billion fortune even after he has given away $28.5 billion through last July, according to Forbes.com.
“She’s going to have more money than she needs,” Buffett said. “The big thing you want is for money not to be a problem. And there’s no way if she holds the S&P — or virtually none, absent something happening with weapons of mass destruction — she (won’t) have all the money she can possibly use.”
Buffett gave a more-detailed version of this advice in a 2014 letter to shareholders. He said he would deliver cash to a trust for his wife’s benefit upon his death, with instructions to put 10% in bonds and 90% in index funds, preferably from mutual fund house Vanguard Group.
Similar advice applies to nearly anyone, Buffett said. Investors great and small can see wealth eroded by commissions, fluctuations in specific stocks or even corrupt advisers, he said.
“What I’m suggesting is that this is what a very high percentage of people should do,’’ he said. “There’s no way in the world, if you’ve got plenty of money, that you should let it become a minus in your life.’’
Indeed, most firms and the vast majority of active mutualfund managers fail to outperform the broader stock market over time. In the past 15 years, 92% of large-cap funds trailed the S&P, according to a report by Standard & Poor’s Dow Jones Indices, and as many as 95% of managers of funds trying to beat indexes for medium-sized companies trail their benchmark indices.
The question about Buffett’s wife came during a weekend-long festival devoted to the company and its shareholders, many of whom follow Buffett’s pronouncements on investments with something approaching reverence. Events include everything from visits to Berkshire-owned businesses like See’s Candy and Borsheim Jewelry to a contest to see who can toss rolled-up newspapers closest to a doorway from 35 feet away. Microsoft founder and Buffett pal Bill Gates is regularly seen trying his hand in that one.
Buffett sounded off on topics from Wells Fargo’s scandal, to why he thinks Apple can avoid the volatility of other technology companies. Wells’ problems began with a flawed compensation scheme, but that was “dwarfed” by executives’ failure to act decisively when they learned of the issue, said Buffett, whose company owns more than $26 billion worth of Wells shares. More than 5,300 Wells Fargo employees were fired for abuses before they became public, regulators later found.
As for Apple, consumers’ brand loyalty to the company is so strong that it is closer to the stability of an elite consumerproduct company than the vulnerability of other tech firms, which can be surpassed by rivals who leapfrog their technology, Buffett said.
Berkshire began buying Apple shares last year and now owns nearly $20 billion worth of the stock, according to a CNBC estimate. That number includes recent purchases Buffett has talked about publicly but has not yet formally reported in securities filings for the first quarter.
Munger, 93, who often plays the part of curmudgeonly uncle to Buffett’s kindly one, differed with his boss about whether Berkshire could beat the market.
“I want to hold the Berkshire,’’ he said. “I recognize the logic of the S&P algorithm is very hard to beat. But I’m just more comfortable with the Berkshire.”
Buffett replied, “It’s the family business.”
“If you want to protect your heirs from the stupidity of others, you may have a good system,” Munger retorted.