Warren Buffett, the acclaimed multi billionaire investor and the second wealthiest man in America was recently rebuffed by Timothy Armour, the CEO and chairman of Capital Group’s Research and Management Company, over his latest investment strategy. The investment deal had Buffett placing one million dollars into a S & P 500 passive index fund for charity, which to most would not seem like a particularly dodgy deal (indeed it seems likely the venture will pay out well for Mr. Buffett).
Tim Armour agrees that there is absolutely nothing inherently wrong with passive index funds (which are distinct from active management funds by being mirrored upon a given market index and not managed by actual individuals) and states that they can be a integral component of one’s portfolio.
The problem Mr. Armour has with passive index funds also has nothing to do with what he considers to be the tired and useless argument about “active vs. passive.” To Mr. Armour it is all about protection and safety in the long run – this is precisely just what passive index funds are very, very bad at.
The reason why is that unlike many other fund types, passive index funds grant prospective investors absolutely no financial protection in the face of down market. This, coupled with the fact that most people, even most moderately seasoned independent investors, are unaware of this fact, can cause potentially massive financial losses down the line. Mr. Armour, in opposition to Mr. Buffett, proposes that prospective investors look more to protection across good and bad markets more so than steady gains in the short run.
Learn more about Timothy Armour at http://www.investmentnews.com/article/20150729/FREE/150729863/capital-group-parent-names-armour-chairman-replacing-rothenberg