Are Passive Funds Always Good? Do They Have Risks?

Warren Buffett says that he can get better returns on his investment if he invests in an S&P 500 passive index fund than a group of hedge fund managers. He is right — there are too many hedge funds and investment groups that charge too much and are too costly. It is a good idea to look into smaller and more affordable investments that work well.

However, Tim Armour says to take a second look. Just thinking about labels such as passive funds or active won’t work. Passive funds may cost less, but you don’t always know how much they will return. Higher cost funds can be too overpriced. It’s all about getting a good plan that works.

Tim Armour says further that passive funds have risks as well, because when there are marked downsides, there is no protection and you are one hundred percent exposed. In that case, Mr. Buffett is wrong. A third point: Even Mr. Warren Buffett would agree that there are plenty of high cost funds that work very well.

Tim Armour is chairman of the Capital Group. He has thirty years of experience in investing with the Capital Group. He began in the Associates Program and is now CEO. He studied in Middlebury College, where he got his bachelor’s in economics.

Before being elected as chairman of Capital Group, Tim Armour was chairman of their management committee. His election to chairman happened in the beginning of 2015. It happened after Jim Rothenberg, the former Chairman, passed away.

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Categories : Financial Analyst