Buffett prefers low-cost index funds. As he told CNBC this year: "Consistently buy an S&P 500 low-cost index fund. I think it's the thing that makes the most sense practically all of the time."
Index funds hold every stock in an index such as the S&P 500, including big-name companies such as Apple, Microsoft and Google. Because this type of fund is highly diversified, it stays relatively constant and avoids the risk that comes with picking individual stocks.
Plus, the fees tend to be low and, as Buffett points out, "costs really matter in investments. If returns are going to be 7 or 8 percent and you're paying 1 percent for fees, that makes an enormous difference in how much money you're going to have in retirement."
In short, if you're looking for a good, reliable place to invest your money, go with low cost index funds. And stay the course, Buffett says, even when you see market fluctuations or a bad headline: "Keep buying it through thick and thin, and especially through thin. … American business is going to do fine over time, so you know the investment universe is going to do very well."
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