Warren Buffett Urges Retail Investors to Use Index Funds

Warren Buffett, the retired CEO of Berkshire Hathaway, advocates for retail investors to avoid picking individual stocks and instead invest in low-cost index funds tracking the S&P 500. He argues that investors who lack the sophistication to evaluate individual companies can outperform most professionals by holding an index fund indefinitely.

Buffett has promoted this strategy for decades, a position validated by a 10-year bet he won against Protégé Partners co-founder Ted Seides. In that challenge, a Vanguard S&P 500 fund outperformed a professional selection of hedge funds.

Data from S&P Dow Jones Indices supports this approach. Reports show that 79% of actively managed large-cap U.S. funds underperformed the S&P 500 in 2025. Over a 20-year period, underperformance rates rose to 93%, which the index provider attributes to inconsistent stock picking and high fees.