What advice would you give to someone who is not a professional investor? Where should they put their money?
Well, if they’re not going to be an active investor – and very few should try to do that – then they should just stay with index funds. Any low-cost index fund. And they should buy it over time. They’re not going to be able to pick the right price and the right time. What they want to do is avoid the wrong price and wrong stock. You just make sure you own a piece of American business, and you don’t buy all at one time.
A personal and a political note:
Personally, when it comes to investment the lesson I’ve learned is to go for general funds and that index funds work perfectly okay if you are on a reasonable normal salary (if you’re an ordinary senior lecturer in Sweden, you’re definitively not in the Scrooge McDuck income bracket).
The most stupid thing I ever did was getting myself talked into placing money in a “growing business fund” in 2002 by
my investment advisor my bank’s saleswoman. In January 2002 the fund was noted at a rate of 235, now it is at 162. The only good thing is that monthly placements from mid-2002 to the end of 2005 were made at a lower rate.1 Putting money into a general European Fund, on the other hand was a much better idea: From 337 to 394 and some nice gains on investments made between 2003 and 2005.2
Politically, Buffett actually questions the pensions policies promoted by a number of political parties in Europe – the idea is that we should all be made into little capitalists by being forced to actively place and revise pensions savings in quasi-individual pensions schemes, cf. the Swedish premium pensions system.
Now, there are good reasons why you would want to make capital available for business investment while at the same time avoiding the creation of big public investment funds (okay – the Social Democrats used to like those: The second best alternative to nationalising industries) and why you should be wary of pay-as-you-go schemes (Germany has a tale to tell and there is a reason why the Swedes had to abandon the old superannuation scheme), but to me it is slightly scary that right-wing politicians seriously believe that it is a state task to lure ordinary people into believing that they can beat the market big time.
So the second disclosure I’ll make about my personal economy is that when I had to choose between the 500+ funds offered in the Swedish pensions scheme, I went for those with the cheapest and most general business plans, and my intention is to let my original choice run until one or more of the funds decide to retire from the system. Here, I’ve never looked back.