Why did he say, "Buying index funds is the best option for most people"?

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Okay, that's an excellent question, and it's one many newcomers to investing grapple with. Let me break it down in plain language without making it too complicated, just why smart people like Naval Ravikant and Warren Buffett recommend index funds.

Why is "buying index funds the best strategy for most people"?

Think of investing like going to a massive seafood buffet.

Picking individual stocks (Active Investing): This is like going into the kitchen yourself, faced with hundreds of ingredients, trying to pick the freshest and tastiest ones to cook a grand meal. It sounds great, but the problems are:
- Do you really know all the ingredients? Can you tell which fish was just caught and which crab is leftover from yesterday?
- Do you have the skill of a top chef? Even if you get the best ingredients, can you cook a Michelin three-star meal?
- You'd spend huge amounts of time and effort selecting and learning to cook, only to potentially end up with a meal worse than what others put together casually.
Buying an Index Fund (Passive Investing): This is like simply buying a buffet ticket. You don't need to fuss around the kitchen. The buffet serves you a pre-made portion of the market's most representative and prominent items (like Boston lobsters, king crabs, salmon, etc.). You don't need to pick or cook anything yourself; you just sit down and eat.

Now, let's see why, for us ordinary people, buying this "buffet ticket" is the best choice.

1. Effortless, No Need to Guess

Most of us have our day jobs, whether we're programmers, designers, or salespeople. We can’t possibly dedicate all our time to researching stocks. What’s the earnings report for this company today? What news broke for that one tomorrow? Who became the new CEO?... This information is overwhelming.

An index fund, however, is like a "value meal combo." It packages a group of the market's most representative companies (e.g., China's CSI 300 Index includes the 300 largest and most liquid companies in the A-share market).

You're not just buying one company’s future; you're buying the future of the entire country's or a sector's macroeconomy. As long as you believe the national economy will grow in the long run, the value of this "meal combo" will rise with the tide over time. You don't need to guess which company will be the next Tencent or Apple.

2. Extremely Diversified, Avoiding Landmines

As the saying goes, "Don't put all your eggs in one basket."

If you invest all your money in a single stock, and that company mismanages itself or faces a scandal like Luckin Coffee, your assets could halve or vanish overnight. This is "stepping on a landmine."

An index fund disperses your eggs into hundreds of different baskets. For example, buying a CSI 300 index fund means you simultaneously hold shares in companies like Kweichow Moutai, CATL, China Merchants Bank, and nearly 300 others. Even if one or two companies run into trouble and their stock prices plummet, the impact on your overall portfolio is minimal. The downfall of one company won't make you lose everything.

3. Extremely Low Fees, Avoid Profits Taken by Middlemen

This is crucial but easily overlooked.

Many actively managed funds (the kind where a fund manager picks stocks for you) charge high management fees. They need to support a large research team and pay hefty bonuses to the managers. These fees are like termites, eating away at your returns year after year.

Index funds, however, are "passive." They don't require a clever fund manager to make subjective judgments. Their task is singular: mimic the index's composition and weighting precisely. Most of this work can be done by computers, hence the management costs are very low.

Over the long term, a mere 1% difference in annual fees, thanks to compounding effects, can result in a significantly smaller final return decades from now.

4. Solid Long-Term Returns, Beating Most "Experts"

This is perhaps the most counter-intuitive yet most truthful point: The vast majority of professional fund managers who claim to "beat the market" fail to outperform the market average (i.e., the index itself) over the long term (10+ years).

Warren Buffett famously made a ten-year bet: He wagered that no group of five hedge funds selected by investment experts could beat the return of a simple S&P 500 index fund over ten years. He won that bet handily.

Why even attempt such a difficult challenge when even the experts struggle? By choosing index funds, you effortlessly capture the market's average return, which already puts you ahead of more than 80% of market participants.

To Summarize

So, the core idea behind why Naval Ravikant (and gurus like Buffett) say this is:

Acknowledge our limitations as ordinary people and then participate in economic growth in the smartest, most "lazy" way possible.

This isn't a passive way of investing; it's actually very wise. It steers you away from unrealistic fantasies of "getting rich overnight" and towards a path of long-term, stable, and reliable wealth accumulation. It's like the "autopilot mode" of the investing world. You don't need to be a top race car driver; just set your destination (long-term holding) and let the system take you there steadily.