Warren Buffett, the most famous active investor alive, doesn't think you should be one. He has been remarkably consistent on this for forty years.

The bet that ended a debate

In 2007, Buffett bet $1 million that a low-cost S&P 500 index fund would beat any basket of hedge funds a professional could pick over the next ten years.

Protégé Partners, a fund-of-funds firm, took the bet. They picked five hedge funds, themselves baskets of clever managers, and ran the clock.

By 2017 the index fund had returned about 125%. The hedge fund basket had returned about 36%. Buffett donated the winnings to charity and made a point: even the very best active managers, working full-time with billions of dollars and the smartest analysts on the planet, lose to a fund that does nothing but own the whole index.

His instructions for us

In Buffett's 2013 letter to shareholders, he laid out, in writing, what should happen with the cash he leaves to his wife when he dies. Quote:

"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.) 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."

Read that again. The most successful active investor of the 20th century is telling his own widow to not pay an active manager. To buy the index. To hold it. That's his real advice for normal people.

What this means for a kid

FromUs is built around this idea. Every gift on the site is invested in a global all-world ETF, the boring, broad, low-cost choice Buffett recommends. We don't pick stocks. We don't time markets. We don't claim to beat anything.

What we do is hand a child eighteen years of patient ownership in roughly 3,700 companies across 47 countries, at 0.22% a year. That's the strategy a billionaire would put his own family in. There's no clever upgrade.

Further reading: Buffett's annual letters are free and surprisingly readable. The 2013 and 2016 ones cover indexing in detail.