Timothy Armour, a prominent investor and business man and the chief executive officer and chairman of the board of Capital Group, recently criticized the financial expert, Warren Buffett over the appropriate amount of focus and impotence which should be placed upon passive index funds. The dissension came around shortly after news happened to be released concerning Mr. Buffett’s newest investment, a charity deal wherein he wagered one million dollars on a S & P 500 passive index fund. Though it, as yet, remains to be seen whether Mr. Buffett will recoup his invest, things are so far looking good for the multi billionaire.
What then was the disagreement? Timothy Armour has no particular qualms about the investment itself (and indeed expresses his praise for Mr. Buffett’s ken sense of market perception and the rigorous way he has, year by year, built up his portfolio) but rather is worried about the intense focus upon passive index funds themselves. For those that may not be familiar with the term, a index fund differentiates itself from a mutual fund by being passively managed based upon market index rather than being actively and constantly managed by individuals.
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Mr. Armour as the CEO of Capital Group notes that passive index funds are sometimes a good option to considered for one’s portfolio but that they pose a considerable risk in the long term – weakness to volatile markets. Indeed, all passive index funds open up a prospective investor to one hundred percent losses if the mirrored market happens to be in a downturn.