Why Warren Buffett Says Most People Should Buy Index Funds
Reviewed for accuracy by the Clearcoin team
Warren Buffett built one of the greatest track records in investing history as chairman of Berkshire Hathaway. Yet the advice he gives ordinary people is strikingly simple: for most, a low-cost index fund beats trying to pick winners.
Key takeaways
- Buffett has run Berkshire Hathaway for decades and is widely regarded as one of the most successful investors ever.
- In his shareholder letters, Buffett has said that most investors — including large institutions — will do better in a low-cost fund that simply tracks the whole market than by paying professionals to beat it.
- Buffett once made a public, decade-long wager that a simple S&P 500 index fund would outperform a basket of hand-picked hedge funds after fees.
- Buffett's advice rests on two ideas ordinary savers can copy: keep costs low, because fees compound against you over decades, and stay invested, because trying to jump in and out usually backfires.
On this page
Who Warren Buffett is
Buffett has run Berkshire Hathaway for decades and is widely regarded as one of the most successful investors ever. That is what makes his advice for everyone else so notable — the ultimate stock-picker tells most people not to pick stocks.
His core message: buy a low-cost index fund
In his shareholder letters, Buffett has said that most investors — including large institutions — will do better in a low-cost fund that simply tracks the whole market than by paying professionals to beat it. He has even instructed that a large share of his own estate be invested in a low-cost S&P 500 index fund for his family's benefit.
The logic: an index fund owns a slice of hundreds of companies, so no single failure sinks you, and its fees are tiny compared with actively managed funds.
The bet that proved the point
Buffett once made a public, decade-long wager that a simple S&P 500 index fund would outperform a basket of hand-picked hedge funds after fees. The index fund won comfortably — a real-world illustration that high fees and clever trading usually lose to a cheap, patient index.
Why fees and patience matter
Buffett's advice rests on two ideas ordinary savers can copy: keep costs low, because fees compound against you over decades, and stay invested, because trying to jump in and out usually backfires. As he has put it, the market rewards patience, not activity.
What this means for you
You do not need to be Warren Buffett to use Buffett's advice. Pick a low-cost, broad index fund inside a tax-advantaged account, automate your contributions, and leave it alone through the ups and downs. Simple and boring is, for most people, the point.
This is Clearcoin's own summary of Warren Buffett's publicly shared ideas, with links to primary sources below. It is not written by them and is for education only — not personal financial advice.
Sources & further reading
Go straight to the primary sources:
Frequently asked questions
What index fund does Warren Buffett recommend?
He has repeatedly pointed ordinary investors toward a low-cost fund that tracks a broad market index such as the S&P 500, rather than actively managed funds with higher fees.
Does Buffett really tell people not to pick stocks?
For most people, yes. Despite being a famous stock-picker himself, he argues the average investor does better in a cheap index fund than trying to beat the market.
Is this financial advice?
No. This is an educational summary of Buffett's public statements. Your own choices depend on your situation; consider a qualified professional for personal advice.