The popular Berkshire Hathaway (BRK) Annual Letter to Shareholders by Warren Buffett is now available to the public. Download it here [pdf].
I’ve been haltingly working on making preparations for my family in case of my premature demise. I’ve done a number of things, but I’m still not sure if my wife can manage our investments when I’m gone. Should I try to teach her, even if she has little interest? Should I find an advisor? Should I hire him/her now, even though I am a control freak? Interestingly, Buffett addresses this issue partially in his letter.
First, Buffett repeats his advice that while he doesn’t believe in efficient markets, he does believe that non-professionals should invest their money in low-cost index funds.
My money, I should add, is where my mouth is: What I advise here is essentially identical to certain instructions I’ve laid out in my will. One bequest provides that cash will be delivered to a trustee for my wife’s benefit. (I have to use cash for individual bequests, because all of my Berkshire shares will be fully distributed to certain philanthropic organizations over the ten years following the closing of my estate.) My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers.
Of course, I’m sure the sum set aside would be enough even if kept 100% in cash. But index funds were still a surprise to me given how many smart money managers Buffett knows. At the minimum, I figured he’d leave a big ole’ pile of BRK shares (managed by some of those smart people that he already hired). But I forgot that Buffett has already committed his BRK shares to charity.
Buffett’s simple advice made me think about my plans again. I would also leave my wife a relatively simple index fund portfolio and a paid-off house. My casual advice given to her so far is that she can spend 2-3% of the total balance each year without worrying about the money running out. With the life insurance proceeds, that 2%-withdrawal value is a bit more than what we spend now, so it shouldn’t be too hard.
If she needs help, she can contact the Certified Financial Planner that Vanguard offers clients ($50k in assets gets you access to a discounted plan from a CFP). I figure that even the cookie-cutter portfolios that they may recommend won’t be too bad in the big picture. I know this is not a complete plan, but well, I also don’t want my wife going to a high-fee manager.