Warren Buffett’s blunt warning: Stop paying “fancy” fees — this simple move can keep thousands in your pocket

In 2007, Buffett confidently made a US$1 million bet that a basic S&P 500 index fund would outperform a hand-picked hedge fund equities chosen by Ted Seides from Protégé Partners over a 10-year period (1). Buffett chose the Vanguard 500 Index Fund Admiral Shares (VFIAX), a popular index fund among U.S. investors. For the next 10 years, the earnings of the VFIAX and the basket of equities was closely monitored.

The outcome? Buffett triumphed — decisively.

Buffett shared the final scorecard of the bet in his 2017 shareholder letter (2). The index fund he selected delivered a total gain of 125.8% during the decade, while the five funds-of-funds chosen by Seides delivered a total gain of 21.7%, 42.3%, 87.7%, 2.8% and 27.0%, respectively, during the same period.

What Canadians can learn from Buffett’s passive-investment bet

The takeaway isn’t that hedge funds are “bad” or that markets always rise in a straight line. It’s that:

• Fees are one of the few investing outcomes you can control
• Broad diversification beats “chasing winners,” for most investors
• Over long periods, keeping costs low can matter as much as picking the “right” investment

That’s especially relevant in Canada, where many investors still hold pricey mutual funds in registered accounts without fully realizing how fees quietly erode returns, year after year.

To help, here are two strategies investors can use based on Buffett’s penchant for low-cost funds.

Strategy 1: Keep fees low (because they compound, too)

Buffett’s point is straightforward: When you pay more, you keep less.

In practical terms, many broad-market ETFs charge a fraction of what traditional mutual funds and high-fee investment strategies cost. For example:

• Vanguard S&P 500 Index ETF (TSX:VFV): Fund documents show an MER that would have been 0.09% without waivers, according to recent fund facts (3).
• Vanguard FTSE Canada All Cap Index ETF (TSX:VCN): fund documents show a MER that would have been 0.06% without waivers, according to recent fund facts (4).
• iShares Core S&P 500 Index ETF (XUS): recent fact sheet shows management fee 0.08% and MER 0.09%.

Even tiny percentage differences add up when you’re investing for decades.

Strategy 2: Diversify — don’t try to “guess” the next big winner

Index investing is built on a simple idea: own the market instead of trying to outsmart it.

Instead of betting on a handful of stocks (or paying someone else to do it), you buy an ETF that holds hundreds — sometimes thousands — of companies.

A basic Canadian-friendly approach is to spread across:

• Canada equities (home-market exposure)
• U.S. equities (large global companies, S&P 500)
• International equities (beyond North America)

You can do that with a small set of broad-market ETFs — or with a single “all-in-one” asset allocation ETF, depending on your comfort level and how hands-on you want to be.

Common mistake: Buying the right ETF — on the wrong exchange

One area Canadians get tripped up is confusing U.S.-listed ETFs with Canadian-listed ETFs. When Warren Buffett suggests index funds, he is suggesting ETFs traded on a U.S.-listed stock exchange. Trading these ETFs requires a brokerage account that trades in U.S.-currency.

For investors looking for to execute on this strategy, a good option is:

Wealthsimple

Trusted by more than three million Canadians, Wealthsimple manages over $100 billion in assets and provides $1 million in eligible coverage through the CDIC for chequing accounts and CIPF for investments. With a Wealthsimple account you have the option of opening a high-interest U.S. savings account that can be used to fund trades for U.S.-listed ETFs and equities. For a limited time, transfer $25,000 or more into an eligible Wealthsimple account and earn up to a 3% match, plus a chance to win a $3-million home. Offer ends March 31, 2026. Visit Wealthsimple via our Apply Now button for up-to-date terms and conditions.

If you’d prefer to skip the currency exchange risk associated with U.S. trades, then stick with Canadian-listed equities and funds. Good broad-based ETFs include Vanguard’s VFV or iShares’ XUS.

To get started, you’ll need to open an online brokerage account. A good option is:

CIBC Investors Edge