Charlie Munger: Should Ordinary Investors Buy Index Funds?

Charlie Munger says an amateur investor only needs to ask two questions to decide whether index funds are right for them.

First: how good am I as an investor? Is my own ability above the market average?

Second: can I find an excellent fund manager? And are the managers I pick actually able to beat the market?

Answer those two questions honestly, and you will know whether — as an amateur investor — you should be buying index funds.

One caveat: neither your own skill nor a manager’s excellence can be measured by short-term results. Look at five years, even ten. If neither you nor the managers you selected can beat the market average, the smart move is to vote with your feet.