Invest Like Warren Buffett

Photo by George Dagerotip on Unsplash

Warren Buffett is worth approximately $150 billion. He built that fortune over six decades through investing. He’s widely considered the greatest investor of all time—the “Oracle of Omaha.” He just retired as CEO of Berkshire Hathaway at the end of 2025, having transformed a failing textile company into a $1.2 trillion conglomerate.

So when Warren Buffett talks about how regular people should invest, it’s probably worth paying attention.

And here’s what he says: Don’t pick stocks. Buy index funds.

In his 2013 letter to Berkshire Hathaway shareholders, Buffett described the instructions in his will for his wife’s inheritance:

“My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. I suggest Vanguard’s.”

He went on: “I believe the trust’s long-term results from this policy will be superior to those attained by most investors—whether pension funds, institutions or individuals—who employ high-fee managers.”

In a CNBC interview he said: “The trick is not to pick the right company. The trick is to essentially buy all the big companies through the S&P 500 and to do it consistently.”

And then he put his money where his mouth is—literally.

In 2007, Buffett made a million-dollar bet with Ted Seides, a hedge fund manager at Protégé Partners. Buffett wagered that a simple S&P 500 index fund would outperform a carefully selected portfolio of hedge funds over ten years. These weren’t random hedge funds—Seides picked five funds managed by some of the smartest people on Wall Street, using sophisticated strategies that regular investors can’t access.

The bet started January 1, 2008—right as the financial crisis was beginning. At first, it looked like the hedge funds might win. They lost 23.9% that year while the S&P 500 crashed 37%. But as markets recovered, the index fund pulled steadily ahead. By 2017, it wasn’t even close.

The final results: the S&P 500 index fund gained 7.1% annually. The hedge funds averaged 2.2%.

A million dollars invested in the index fund would have grown to nearly $2 million. The same amount in the hedge funds would have grown to about $1.2 million. The “dumb” passive strategy crushed the sophisticated active managers—despite their research teams, their complex models, their connections, and their confidence.

The difference was largely fees. Hedge funds typically charge 2% of assets under management plus 20% of any profits. Index funds charge as little as 0.03%. Over time, those fees compound just like returns do—except they work against you. As Buffett put it: “When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients.”

I learned this lesson the hard way.

For years, I actively managed my own portfolio. I was doing “pretty good”—better than average. I read the financial news, researched companies, made trades based on what I thought was smart analysis. I checked my accounts constantly, sometimes daily. It felt like I was being responsible, staying on top of things.

But even beating the average, I wasn’t consistently outperforming index funds. I was spending all this time and energy to NOT beat a simple investment I could have set and forgotten.

My wife Karen looked at the numbers with me one day and said: “Why the heck are you doing this every day when you could do better by not touching it?”

That comment shook me awake.

I took the investment apps off my phone. It was hard at first—the urge to check, to tinker, to “do something” is strong. It took a while to detox from the habit. But once I did, I made more money.

Today, the majority of my investments are in target-date funds or index funds of various kinds. I’ve built the muscle of letting go and trusting the market. It’s a skill you have to develop. It doesn’t come naturally.

Here’s something I’ve noticed: people with investing wins are like people with gambling wins. They talk about their wins, not their losses.

Your friend tells you about the stock that went up 500%. They don’t tell you about the three that tanked. Or the one they held too long and gave back all the gains. Or the one they’re still holding that’s down 60% and they’re hoping will come back.

And even the “wins” often aren’t what they seem. If you haven’t sold, you haven’t made anything. That 500% gain is numbers on a screen until you cash out. The stock could drop tomorrow and all those “gains” disappear. This is what I found—both in my own portfolio and watching others. The dramatic wins get all the attention, but they don’t represent the full picture.

People just starting to focus on investing become fixated on having “that big win” like their friend supposedly had—even though that win is often ephemeral, unique, or never quite happened the way it was described.

And here’s the part nobody talks about: stocks that go to zero.

When someone brags about their one big win, remember all the stocks that lost everything.

Enron was a Wall Street darling. Stock peaked at $90.75 in 2000. By October 2001, it was worth 26 cents. Employees lost their jobs AND their retirement savings—many had 401(k)s concentrated in Enron stock. One employee had $150,000 in her retirement account. She lost everything.

Silicon Valley Bank seemed rock solid—a major tech bank. It collapsed in 48 hours in 2023. Second-largest bank failure in American history.

Bed Bath & Beyond. A household name. Meme stock traders piled in betting on a comeback. The company filed for bankruptcy. Stock went to zero.

Every one of these companies had investors who thought they were making a smart bet. Many were considered “safe.” This is why you don’t put your financial future in one stock—or even a handful of stocks.

So what’s the alternative? Index funds.

An index fund is a basket of stocks that tracks an index—like the S&P 500, which includes 500 of the largest U.S. companies. When you buy an S&P 500 index fund, you own a tiny piece of all 500 companies. Apple, Microsoft, Google, Amazon, Coca-Cola, Johnson & Johnson—all of them.

Why own one stock where all the risk is embedded in that one company when you can own the entire S&P 500? Why have one energy stock when you can have a piece of every major one in the field?

This works for a few reasons.

Diversification. If one company fails, you still have 499 others. Enron going bankrupt doesn’t wipe you out when it’s 0.2% of your portfolio.

Low cost. No expensive manager trying to pick winners—just tracking the index. Some S&P 500 index funds have expense ratios as low as 0.015%. Compare that to hedge fund fees of 2% plus 20% of profits.

Simplicity. No research, no guessing, no timing the market. You’re not trying to pick the next Apple—you already own Apple, and Microsoft, and Google, and 497 other companies.

Historical performance. historically, over long periods, the S&P 500 averaged about 10% annually. Over the last 30 years, it’s averaged roughly 10.4%. That’s not a guarantee—some years you’re up 25%, some years you’re down 35%. But over the long term, the market has always gone up.

To put that in perspective: $10,000 invested in an S&P 500 index fund 30 years ago would be worth approximately $200,000 today. That’s without adding a single dollar along the way. Just letting it sit.

Let me tell you about someone I met recently.

I was at a speaking event, and a woman came up to me afterward. She said she and her husband had started setting aside money for retirement. They kept it in their checking account.

What stopped them wasn’t motivation—they were saving. It was that they didn’t know where to put it. Not just what kind of retirement account, but more importantly: how do we invest it so it doesn’t all go away because we picked the wrong stock?

They were paralyzed by not knowing.

I sat down and explained index funds to her. It was eye-opening for her. But here’s the sad part: while they couldn’t decide what to do with the money, they got frustrated and ended up spending it. Now they have to build it back up.

That’s the cost of not knowing. People don’t invest because they’re afraid of picking wrong. Index funds solve that problem—you’re not picking individual stocks, you’re buying the whole market.

The hardest part isn’t understanding index funds. It’s learning to let go.

Even when you intellectually understand that this works, it’s hard to actually trust the market. The urge to check, to tinker, to “do something” when the market drops is powerful. We’re wired to want control. Financial media makes it seem like you should always be reacting. Watching your portfolio drop 20% and doing nothing feels wrong.

But historically, the people who stay invested through downturns do better than those who try to time the market. The market has always recovered. If you don’t need the money for 20 years, a bad year doesn’t matter. The discipline is not looking, not reacting, not selling when things go down.

I had to take the apps off my phone. I had to actively resist the urge to check. It’s a muscle you build over time.

If you want to understand the history behind this, there’s a documentary called “Tune Out the Noise” about John Bogle and the creation of Vanguard and index funds. Watching the background gives people confidence—it’s not just an opinion, there’s real data and decades of history behind this approach. Worth an hour of your time.

Here’s the core misconception I want to correct.

People think: to get good returns, you need to be an expert doing it 24/7—researching stocks, watching the market, making trades.

The reality: for good returns, you need to be patient, not touch it, and invest in a lot of different things at once. Over time, the market goes up. You don’t need to be an expert. You need to trust the process and give it time.

“But what if I find the next Apple?”

You might. But probably not.

And even if you do, will you know when to sell? I owned Apple—and sold it way too early, before Steve Jobs came back. I also owned Lowe’s and sold before it took off nationally. Even people who pick good stocks often don’t capture the gains because they sell too early, hold too long, or have their winners offset by losers.

The question isn’t “can I pick a winner?” It’s “can I consistently pick winners well enough to beat the market over 20-30 years?” For almost everyone—including professional fund managers—the answer is no.

Index funds remove that pressure. You’re not trying to find the next big thing. You already own a piece of everything.

So where does this leave you?

If you’ve been sitting in cash because you don’t know what to do with it, index funds are the answer most people need. You don’t have to pick stocks. You don’t have to time the market. You don’t have to be an expert.

If you’ve been burned by stock picking—or you’ve been watching your portfolio without a clear strategy—this is permission to stop. Put your money in a low-cost index fund. Delete the apps. Let it grow.

If you’re overwhelmed by the investment choices in your 401(k), look for the option that says “S&P 500 Index” or “Total Market Index” or “Target Date Fund.” Those are almost always the right choice for long-term retirement money.

The richest investor in history—a man who made his fortune picking stocks—says the best approach for regular people is to buy index funds and leave them alone. Sometimes the smartest move isn’t doing more. It’s choosing a strategy you can actually stick with for decades.