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Why Warren Buffett Thinks Putting Your Money Here Is a Good Idea

Vanguard recently a paper entitled which explored how well actively managed funds -- those with high expense ratios -- compared to the low-cost index funds.

Vanguard.

Vanguard recently released a paper entitled The case for index-fund investing which explored how well actively managed funds -- those with high expense ratios -- compared to the low-cost index funds.

Source:

www.insidermonkey.com

And as you can see, over the last 10 years, nearly 80% of the actively managed across each of the five categories have underperformed the basic low-cost fund. So maybe you'll get lucky and buy funds only in that 20% outperformer bucket, but according to the Investment Company Institute, there are currently over 77,000 mutual funds in the world. Good luck combing through that and finding the winners.

The study went on to note, "as a result of the zero-sum game, costs, and the general efficiency of the financial markets, consistent outperformance of any one active manager has been very rare."

Of course, there are managers who consistently outperform the markets -- the Motley Fool held the top three spots in the Hulbert Financial Digest rankings of stock newsletter services -- but by and large, evidence shown above reveals exactly why index funds can provide such value.

The Foolish bottom line

At times, we can think the best investment strategy is the most complicated one, and the only way to make money in the stock market is to try to beat it. But evidence like this shows the true value of patient investing in index funds, and also the key considerations of the actual cost paid to an advisor of any sorts.

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The article Why Warren Buffett Thinks Putting Your Money Here Is a Good Idea originally appeared on Fool.com.

Patrick Morris owns shares of Berkshire Hathaway. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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