Self-made billionaire and Democratic presidential hopeful Tom Steyer has some investment advice for people who don't have a lot of money but want to start investing.
"If you want to save, buy an index fund," Steyer tells CNBC Make It.
Picking individual stocks is extremely tough, even for the experts, says Steyer, who founded the hedge fund Farallon Capital in 1986 and is worth an estimated $1.6 billion. But index funds are a form of passive investing that include a preset bucket of stocks from an index.
An S&P 500 Index fund, for instance, invests in the top 500 companies listed on stock exchanges in the U.S., according to Standard & Poor. That includes big name businesses such as Amazon, Apple, Microsoft and Google.
Over time, index funds generally have a better return than trying to pick stocks or other investment strategies, Steyer tells CNBC Make It. For example, the average annualized total return for stocks on the S&P 500 index from 1926 through 2018 is about 10%.
But it's important to continue to invest consistently and stay invested "through thick and thin," Steyer says, because in the short term, the market will always fluctuate.
Index funds also have low fees and you can start with a small amount of money.
Steyer is not the only billionaire who advises investing in index funds. Warren Buffett has also long touted their benefits.
Buffett previously told CNBC he thinks index funds make the most sense "practically all of the time." In February, he calculated for CNBC that someone who had invested $10,000 in an index fund in 1942 would be worth around $51 million.
Meir Statman, professor of finance at Santa Clara University tells CNBC Make It that Steyer and Buffet's investing advice is actually good advice for anyone.
"This is true whether one has thousands or millions of dollars," Statman says. "Index funds are best for all amateur investors."
Steyer announced in July that he is running for the Democratic presidential nomination. According to his campaign website, Steyer wants to ensure that "economic power rests with the American people, not big corporations." He tells CNBC Make It that helping people "build up their own nest eggs" will be key to his campaign. Though he did not elaborate on how he would do that, Steyer's economic agenda includes repealing Trump's tax plan and "expand[ing] the earned income tax credit and retirement security programs" among other things.
Steyer made his fortune investing in a slew of companies, including ones that operate coal mines and coal-fired power plants, but has since become an environmentalist. He is known to fly commercial and drive a modest 2016 Chevrolet Volt, a hybrid gas and electric vehicle, for environmental reasons.
In the Democratic presidential race, Steyer was polling at just 1% nationally, according to a November Monmouth University poll.
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