This old video of Tim Ferriss asking Warren Buffett and Charlie Munger how regular people should invest resurfaced on social media. I know it’s become a cliché to say “Warren Buffett said…” but this is as sensible as advice can get for regular people who get a salary and save every month.
I’ve lightly edited the transcript for readability.
Tim Ferriss: I’d like to ask both of you: if you were 30 years old again and had your first million in the bank, how would you invest it, assuming you are not a full time investor, you have another full time job, you can cover your expenses with other savings for about 18 months, and you have no dependents, It’d be really helpful for my students, myself, and others here if you could be as specific as possible about asset classes, percentages, or whatever you’re willing to offer.
Warren Buffett: Well, I’ll be very simple. Under the conditions you name, I’d probably have it all in a very low-cost index fund. It’d probably be Vanguard. Somebody I knew was reliable, somebody where the cost was low, and because you postulated that you’re not going to become a professional investor, I would recognize the fact that I’m an amateur investor, and I would feel that unless bought during a strong bull market, which this hasn’t been, I would feel that was going to outperform to a degree bonds under current conditions over a long period of time, and then I’d forget it and go back to work.
Charlie Munger: it’s in the nature of things that you aren’t going to have a whole lot of screamingly successful professional investors. You’ve got a great horde of professionals taking croupier profits out of the system. Most of them pretend to be professional investors. And that is in the nature of things, too.
If you don’t have any rational prospect of being a very skilled professional investor, of course you should compromise on some simple thing like an index fund.
Warren Buffett: And that you will not get that advice from anybody because nobody gets paid to give you that advice. So, you will have all kinds of people telling you how much better they can do for you than that and how if you just give them a wrap fee or give them commissions or whatever it may be, they will do better, but they won’t. On average, a thousand other people like you do the same thing. That group of a thousand will do worse if they listen to the people that make pitches at them. In the end, why should you expect, I mean, you’ll get a very perfectly decent return over a 30- or 40-year period by doing what I suggest. Why should you expect more than that when you don’t bring anything to the party? The salesman will tell you’ll get it, but you won’t.