Mr. Buffett’s annual letter to shareholders is out. I’ve read the letter for you and am highlighting the most important point.
Here it is:
- Buying a low cost index fund that tracks the whole market would have returned an annual return of 11.8%(pre-tax) over the past 77 years.
- Paying a 1% annual fee to an investment manager over this 77 years period would have cut your final cash balance by 50%!
(Background information: Mr. Buffett’s first stock purchase was 77 years ago for $114.75)
If my $114.75 had been invested in a no-fee S&P 500 index fund, and all dividends had been reinvested, my stake would have grown to be worth (pre-taxes) $606,811 on January 31, 2019. That is a gain of 5,288 for 1.
Meanwhile, a $1 million investment by a tax-free institution of that time – say, a pension fund or college endowment – would have grown to about $5.3 billion.
Let me add one additional calculation that I believe will shock you: If that hypothetical institution had paid only 1% of assets annually to investment managers, its gain would have been cut in half, to $2.65 billion. That’s what happens over 77 years when the 11.8% annual return actually achieved by the S&P 500 is recalculated at a 10.8% rate.
Click below to read the letter.
http://www.berkshirehathaway.com/letters/2018ltr.pdf
I’m a department head for a high school in Toronto. I graduated from the Ivey School of Business at Western University and have been a DIY investor for over 20 years.