This article was co-published with The Washington Post.
Warren Buffett, the most successful investor of our time, is a huge fan of low-cost index funds — funds that replicate a market index rather than try to outperform it — as the way for the average investor to succeed in the stock market. "By periodically investing in an index fund … the know-nothing investor can actually outperform most investment professionals," he wrote in his 1993 letter to shareholders of his Berkshire Hathaway conglomerate. "Paradoxically, when 'dumb' money acknowledges its limitations, it ceases to be dumb."
He returned to the subject in this 2016 letter, writing, "Both large and small investors should stick with low-cost index funds." And in his newest shareholder letter, Buffett said that one reason he made a widely publicized bet (which he has now won) that a low-cost Vanguard index fund would outperform a group of hedge funds over a 10-year period was "to publicize my conviction that my pick — a virtually cost-free investment in an unmanaged S&P 500 index fund — would, over time, deliver better results than those achieved by most investment professionals, however well regarded and incentivized those 'helpers' may be."
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Given Buffett's praise of index funds — specifically, those with low fees — you'd think that all the employees at Berkshire Hathaway companies would get to practice what the boss preaches by being able to invest their 401(k) money in such funds.
But you'd be wrong.
It turns out that employees of many Berkshire subsidiaries have the same problem — and it's one that, as we'll see, also affects millions of Americans outside of Buffett's companies. To wit, your employer, not you, chooses your 401(k) investment options and your choices may be less than optimal either because your employer doesn't know any better or because your employer's interests are different from yours.
You wouldn't expect to see this problem at a company run by a brilliant investor like Buffett, but it's there. I've looked at the retirement plans of each Berkshire subsidiary whose investment options I could find on file at the Labor Department, which turned out to be about 50 of the 63 subsidiaries listed on Berkshire's website.