An article published in the USA Today titled “Warren Buffett: This is the best investment most people can buy” was forwarded my way recently. I find it interesting to read statements attributed to Warren Buffet, even if the journalists covering them sometimes rephrase or take things out of context.  Judging by the quotes in the article, all Warren actually asserted was that the Vanguard 500 Index fund is a great choice if you are looking for passive exposure to the “American industry” as a whole – which is not the same thing as the best investment for most people to buy as the journalist stated.

And here are a few reasons why Warren Buffett or anyone else with a moral compass and a finance background would not and should not make such a statement:

  • There is no such thing as a best investment for most people because people have different investment goals, risk tolerances, investment horizons, tax considerations, liquidity needs, etc.
  • Volatility. Not everyone would be able to stomach the -37% drop the fund experienced in 2008. And if one had to withdraw money for expenses or required minimum distributions that year (as retirees typically do), he or she would have certainly captured the losses.
  • Knowing when to buy is just as important as, if not more important than, what to buy.  Given the current environment (high P/E ratios, high volatility, presidential year, and possibility of a recession), even I, with my pretty high risk tolerance, would not plunk down my money for an S&P 500 fund right now. No one can predict when the market is at its lowest point, but putting one’s entire wealth into the American industry at a time when the market is priced at an all-time high even though the S&P 500 companies are expected to post shrinking earnings for a fifth straight quarter would not be wise.

So, while the bad news is that there is no best investment for most people, the good news is that we here at Journey Tree realize that and are committed to making investment decisions that are in each of our clients’ best interests and consistent with their goals, risk tolerances, investment horizons and needs.