Date
23 May 2017
Without having to spend a great deal of time researching companies like billionaire investor Warren Buffett does, an average investor can still grow wealth over time by investing persistently in an index fund. Photo: Reuters
Without having to spend a great deal of time researching companies like billionaire investor Warren Buffett does, an average investor can still grow wealth over time by investing persistently in an index fund. Photo: Reuters

Index funds: How to get rich without really trying

Billionaire investor Warren Buffett recalled that when he was young, the Dow Jones Industrial Average was stuck at around 200 points, which means he has witnessed a 100 times gain in the benchmark index.

I bet lots of people have seen such opportunities, although very few became billionaires by investing in stocks.

But even for an average person, if only he has the patience and persistence to buy and sit on an index fund, it’s that not difficult to get rich.

He does not even have to spend a great deal of time researching companies like Buffett does.

The US stock rally, along with the surge in Hong Kong property prices, reminds us of the great power of asset inflation.

On the other hand, it also shows the risk of holding cash over a long period, as the value of even the seemingly safest asset keeps diminishing over time.

The US bull market started in 2009. But now that the United States has begun to raise interest rates, the risk of a major pullback emerges.

Nonetheless, I believe it is worth the risk to jump on the bandwagon, and the index fund is one of the best tools to ride the market.

There are two main reasons.

First, the earnings power of US corporates is improving, thanks to a group of fast expanding internet giants, all of which have a strong presence in the index.

Second, it is very flexible and cost-efficient to invest in US stock index funds online, even for those who want to buy in small amounts each time. This is why more investors are drawn into the market.

Remember, accumulating assets is far more rewarding than hoarding cash.

But don’t venture into exotic plays, like shell companies. The quality of listed companies varies so much, and unless you are an expert, there’s no point in taking too much risk.

Index fund, on the other hand, is a simple way to grow your wealth in the long run.

This article appeared in the Hong Kong Economic Journal on March 6

Translation by Julie Zhu

[Chinese version 中文版]

– Contact us at [email protected]

RT/CG

Director, Asset Management at Ample Capital Limited.

EJI Weekly Newsletter

Please click here to unsubscribe