Warren Buffett has so much great advice to offer to investors, but it all boils down to this:
Get over yourself.
Stop believing that there is a secret magic formula out there for making millions of dollars overnight, and quit thinking that you will discover this formula because you’re much smarter than all of the other investors in the world.
As a matter of fact, what Warren Buffett suggested seems to tell us that when it comes to becoming wealthy, slow and steady wins this race every time.
After reviewing Warren Buffett’s most recent advice, it has been compiled into a list of actionable tips.
But as for this article, we have distilled his best tips into three points of insight and have expanded upon them. Learn the Oracle of Omaha’s thought process below.
For Long-Term Investments, Individuals Should Invest in Index Funds That Are Directly Tied to the S&P 500
This is what Warren Buffett says that he recommends for the money that he will leave to his wife after he passes on from this world.
Warren Buffett’s plan consists of putting 90% of his money into a low-cost S&P 500 index fund, and the other 10% will go into short-term government bonds. “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,” adds the Oracle of Omaha.
He is most likely correct in this logic. Further research seems to dictate the idea that index funds do outperform managed funds – and this includes mutual funds – the majority of the time.
The Buffett logic is simple: since index funds are considered passive, it all boils down to buying all of the stocks in an index such as the S&P 500, and there is a lot less cost to cover and the expenses are lower than when buying and selling investments in an attempt to try and earn more of a return.
Please take notice of the phrase “long term.” The stock market, as we know, can certainly crash. And then it will take years for itself to catch up once again. To reap the benefits of the long-term return, you need to have self-discipline and time on your side to leave your money in the index fund and wait out the down periods. This is not the right investment for everybody.
Learn How to Save
Last year, Buffett shared this particular piece of insight during a television special. “I think the biggest mistake is not learning the habits of saving properly early. Because saving is a habit,” said Buffett. He added that another big mistake is trying to get rich quickly. “It’s pretty easy to get well-to-do slowly. But it’s not easy to get rich quick.”
When Stock Prices Drop, Buy More, Do Not Sell
Buffett certainly followed his own advice last year when in a matter of days he lost $2 billion after disappointing earnings reports lowered the prices of some of the biggest investments in the Berkshire Hathaway portfolio. But as he mentioned to CNBC, investors who immediately jump ship after a stock price goes down deprive themselves of an opportunity to recover lost funds as the price goes back up.
Buffett has even said that he actually likes bear markets, and that the more the price drops, the more he is likely to buy a stock. But generally speaking, his advice is in reference to purchasing long-term, dependable stocks in businesses where you thoroughly understand the business model and industry.
“If you told me that the market was going to go down 500 points next week, I would have bought those same businesses and stocks yesterday,” explains Buffett. “I don’t know how to tell what the stock market’s going to do. I do know how to pick out reasonable businesses to own over a long period of time.”