<div id="readability-page-1"><div><div><p>Legendary investor <strong>Warren Buffett</strong> once sounded the alarm on the hidden costs of frequent trading, warning that the habit quietly erodes wealth while enriching Wall Street.</p><div><div><div><p>Trending Investment Opportunities</p></div></div></div><h2><strong>Buffett's Letter To Shareholders Highlights The Hidden Toll Of Active Trading</strong></h2><p>In his 2016 Berkshire Hathaway annual letter, Buffett cautioned that &#34;active investors,&#34; those who frequently buy and sell, often underperform passive index fund investors because of the layers of fees and expenses they rack up. According to Investopedia.</p><p>After costs, &#34;their aggregate results… will be worse than those of the passive investors,&#34; Buffett wrote.</p><h2><strong>The $1 Million Bet That Proved Index Funds Beat Hedge Funds</strong></h2><p>Buffett separates investors into two camps: passive index fund holders and active traders. Since both groups together make up the entire market, their gross returns, before factoring in costs, should be roughly the same.</p><p>He underscored the point with his famous $1 million wager in 2007, challenging top hedge funds to beat a low-cost S&amp;P 500 index fund over 10 years. </p><p>The result: the Vanguard 500 Index Fund compounded at roughly 7.1% annually, while a basket of five funds-of-hedge-funds returned just 2.2% after fees and taxes. </p><p>&#34;Even the best managers couldn't outrun the drag of a two‑tier fee structure,&#34; Buffett said.</p><h2>Buffett's 2015 Warning On The Harsh Reality Behind The American Dream</h2><p>In April this year, the billionaire investor also warned about the tax bite, noting that short-term capital gains are taxed at nearly twice the rate of long-term gains, further reducing net returns.</p><p>Housing was unaffordable, essentials cost more than ever, and despite working full-time, sometimes more, millions of Americans still felt just one flat tire away from financial disaster.</p><p>Buffett had addressed this problem a decade earlier, not as a warning about the future but as a description of reality at the time.</p><p>&#34;There's been millions that have lived the dream,&#34; he said in a 2015 PBS NewsHour interview. &#34;But there's been an American nightmare that has accompanied that.&#34;</p><p>Buffett had been referring to people who followed society's rules and worked hard, yet still couldn't get ahead.</p><ul> <li><strong>Charlie Munger Said Getting Rich Is Harder Than Ever, But Here’s ‘The Beauty Of It’ — You Only Have To Do It Once</strong></li> </ul><p><em>Photo courtesy: Shutterstock </em></p></div></div></div>

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<p>Warren Buffett warns that frequent trading can erode wealth, benefiting Wall Street instead. In his 2016 letter, he noted that active investors often underperform passive index fund investors due to high fees. Buffett's $1 million bet demonstrated that a low-cost S&P 500 index fund outperformed hedge funds over ten years. He also highlighted the tax implications of short-term capital gains, which further diminish returns. Buffett's insights reflect broader economic challenges faced by many Americans today.</p>

- Warren Buffett warns that frequent trading erodes wealth due to hidden costs, benefiting Wall Street instead.  
- In his 2016 letter, he highlighted that active investors typically underperform passive index fund investors because of fees, as demonstrated by his $1 million wager against hedge funds.  
- Buffett also noted the impact of short-term capital gains taxes and the financial struggles many Americans face despite hard work, reflecting a broader economic reality.

Warren Buffett Warns Millions Could Be Bleeding Wealth Through This Common Investing Habit Wall Street Loves