Warren Buffett is one of the most successful investors of all time, and he credits his success to sticking to a few basic investing principles.
Invest in Low-Cost Index Funds
To build up retirement savings, Buffett swears by one simple tip.
“Consistently buy an S&P 500 low-cost index fund,” he told CNBC in 2017. “I think it’s the thing that makes the most sense practically all of the time.”
Stay the Course
As the market fluctuates, it’s easy to panic and be tempted to sell your holdings during the downswings. But Buffett advises against this.
“Keep buying through thick and thin, and especially through thin,” he told CNBC. “The temptation when you see bad headlines in newspapers is to say, ‘Well, maybe I should skip a year or something.’ Just keep buying. American business is going to do fine over time, so you know the investment universe is going to do very well.”
Don’t Bet on Individual Stocks
Buffett advises against the practice of stock picking.
“The trick is not to pick the right company — the trick is to essentially buy all the big companies through the S&P 500 and to do it consistently, and to do it in a very, very low-cost way,” he told CNBC. “You do not want to ever get the impression that you can pick stocks.”
Pay Attention to Fees
Buffett preaches the advantages of low-cost index funds and warns investors to pay attention to fees when choosing where to invest.
“Costs really matter in investments,” Buffett told CNBC. “If returns are going to be 7 or 8% and you’re paying 1% for fees, that makes an enormous difference in how much money you’re going to have in retirement.”
He doesn’t believe paying high management fees is worth it.
“The record shows that the unmanaged index fund is going to do quite well over time, and active investment as a group can’t beat it,” Buffett said.
If you haven’t started investing, start now. Buffett believes the earlier you can get in the game, the better.
“Start early,” he said at the 1999 Berkshire Hathaway annual shareholders’ meeting, CNBC reported. “I started building this little snowball at the top of a very long hill. The trick to (having) a very long hill is either starting very young or living to be very old.”
Do Your Own Research
During the 1999 shareholders’ meeting, Buffett advised investors to “learn what you know and what you don’t.” And when you do learn about what you’re investing in and feel confident about it, don’t let other people’s opinions dissuade you from doing what you believe is best.
“You can’t look around for people to agree with you,” Buffett said, according to CNBC. “You can’t look around for people to even know what you’re talking about.”
Keep a Long-Term View
In his 2014 letter to Berkshire Hathaway shareholders, Buffett explained the importance of keeping a long-term view, especially during market downswings.
“For the great majority of investors, however, who can — and should — invest with a multi-decade horizon, quotational declines are unimportant,” he wrote. “Their focus should remain fixed on attaining significant gains in purchasing power over their investing lifetime.”
Invest in Yourself
Especially during times of inflation, Buffett says you are your best investment.
“The best thing you can do is to be exceptionally good at something,” he said at the 2022 Berkshire Hathaway annual shareholders’ meeting, according to CNBC. “Whatever abilities you have can’t be taken away from you. They can’t actually be inflated away from you. The best investment by far is anything that develops yourself, and it’s not taxed at all.”
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