The legendary Warren Buffett has amassed a fortune worth numerous billions of dollars through his company Berkshire Hathaway. Aside from building one of the largest companies in the world, he is also one of the world’s wealthiest people.
In addition to being an excellent investor, Buffett is known for his wit and timeless advice for investors.
Not only does Buffett offer investing advice — but he offers advice about life in general. However, Buffett’s advice can provide more than just wealth; it can also enrich your golden years. Best of all, anyone can follow his wise words of wisdom because his advice is simple and practical.
As such, here are his 18 best investing tips from a lifetime of experience. You can also maximize your retirement by following these tips.
1. Don’t lose money.
Buffett’s most commonly cited financial advice is as follows, “Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1.”
So, before investing, determine whether you can lose the money you’re investing in. In other words, if you work from a loss, you’ll have a much harder time getting back on track, let alone making money.
How does this pertain to your retirement? You must put this money in a safe and reliable location if you are counting on it for retirement.
If you want to invest or save for retirement, you should choose low-risk options with guaranteed returns. These include fixed annuities, high-yield savings accounts, CDs, treasury securities, and money market accounts.
Also, take advantage of your employer’s retirement plans, such as a 401k or 403b, if you have access to them. You can keep your retirement money safe with these plans, since third parties usually protect them.
2. Follow the 90/10 Strategy.
Buffett wrote to his shareholders in 2013:
“My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund (I suggest Vanguard‘s). 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.”
For those not familiar with the 90/10 Strategy, let us explain it to you.
Basically, an index fund tracks the performance of an index. Buffett recommends an index fund that tracks the S&P 500, which is an index of the 500 biggest U.S. companies. A rise in the S&P 500 also leads to an increase in the index fund. According to Buffett, you should invest 90% of your retirement funds in stock-based index funds.
According to Buffett, the remaining 10% should be invested in short-term government bonds. The government uses these to finance its projects. Compared to other investments, they carry relatively low risks but pay low-interest rates.
In addition to offering safety and consistency of income, some bonds pay periodic interest. Bond funds typically do not suffer as much from a downturn in the stock market.
3. Invest early.
A 68-year-old Buffett was asked in 1999 how he had accumulated his wealth. His response was:
“Start early. I started building this little snowball at the top of a very long hill. The trick to have a very long hill is either starting very young or living to be very old.”
Of course, becoming a millionaire by the time you retire is much easier than amassing a fortune worth $125 billion. Despite this, Buffett’s advice remains relevant. If you begin investing early, you will have an easier time growing your nest egg. Make sure you start investing for retirement as soon as possible if you have not already done so.
One way to boost your returns? Invest in a Roth IRA or Roth 401(k). Yes, you’ll need to pay federal taxes on your contributions. On the other hand, these retirement accounts allow you to grow your money tax-free. Ultimately, your gains should exceed your contributions.
4. Have a purpose.
“Buffett has talked about the importance of having a purpose,” Jeff Rose wrote in U.S. News. You must know what you want to do to give meaning to your life.
“Studies show that retirees often lose their health shortly after quitting when they don’t have something to look forward to each day,” continues Rose. Instead of seeing retirement as the end of your life, think about what you want to do with it.
5. Stay away from debt…especially credit card debt
The secret to Buffett’s wealth was to make interest work for him rather than work to pay interest.
“I’ve seen more people fail because of liquor and leverage — leverage being borrowed money,” Buffett said in a speech at Notre Dame in 1991. “You really don’t need leverage in this world much. If you’re smart, you’re going to make a lot of money without borrowing.”
Credit cards are a particular concern for Buffett. According to him, they should be avoided entirely. “Interest rates are very high on credit cards,” Buffett once said. “Sometimes they are 18%. Sometimes they are 20%. If I borrowed money at 18% or 20%, I’d be broke.”
For those with credit card debt, investing enough to get their company’s 401(k) match is wise since many companies will match 50% or more. Why? You’re getting a 50% return right away.
However, pay off the balance instead of investing it if you have any extra money. When your credit card balance is zero, you can then invest the excess funds.
6. Don’t spend more than you earn.
You might assume that Buffett’s lifestyle is extravagant. After all, he is worth a staggering $125 billion! Despite the billionaire’s wealth, his tastes are simple. In fact, he’s known for hiS frugal habits, like clipping coupons and living in the house he bought in 1958
Despite having the means to buy anything, Buffett has said, “I’m not interested in cars, and my goal is not to make people envious. Don’t confuse the cost of living with the standard of living.”
In other words, Buffet promotes living within your means.
Make sure you think, wait, and evaluate before you spend. Ask yourself if you will sacrifice $16,785.17 at retirement for a pair of $100 headphones today.
Investments, instead of spending, work like this:
- Invest $100 in Vanguard’s S&P 500 index mutual fund (VFINX or VOO).
- Suppose the return is 7% per year on an annualized basis.
- Contribute $100 annually and wait 20 years.
- There will be a return of approximately $16,785.17 on the investment!
That, my friends, is compound interest at work.
Another way to put it — is that the more you spend today, the less money you’ll have tomorrow. To figure out your spending, multiply it by 10. That’s about how much money you could have in retirement if you invested instead of spent.
7. Make it a long-term commitment.
Buffett is often quoted as saying, “Our favorite holding period is forever,” but we should also remember John Maynard Keynes’ words, “When the facts change, I change my mind.”
Although buying funds and shares to keep them forever is sensible, excessive trading fees and short-termism can sometimes lead to investment losses. If those investments aren’t working out, you might consider selling.
However, you may find it helpful to speak with a financial adviser before taking action like this.
8. Don’t let opportunities pass you by.
By nature, Buffett is cautious, which has served him well. However, he certainly favors taking advantage of opportunities, saying, “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”
You can, for example, maximize your contributions to your company’s 401(k) if it is offered. You typically receive a match based on a percentage of your salary. In this case, you can contribute 8% of your income, and your employer will match 4%.
In other words, if your company offers a generous matching program, it’s free money for you. Just note that employees and employers can’t contribute more than a certain amount to an employee’s retirement plan, as set by the IRS. In 2024, the total contribution can’t exceed $69,000, or $76,500 for people 50 and older, with a catch-up contribution of $7,500.
9. Keep fund fees to a minimum.
Buffett also warns investors against high-fee managers. After all, fees quickly add up when you’re investing.
An example would be a 25-year-old who has a $25,000 balance in a retirement account. For 40 years, they plan to invest $10,000 each year and earn a rate of return of 7%. Over 40 years, paying 1% in fees would cost nearly $600,000.
The person could save over $200,000 by investing in lower-cost funds like Buffett recommends. As a result, they will be nearly $340,000 richer when they retire.
10. Buy at a low price and get great value.
Buffett shared another key principle in his 2008 shareholder letter, “Price is what you pay; value is what you get.” Again, spending on items you rarely use or paying high interest on credit card debt can result in losing money.
Consider living modestly, like Buffett, and looking for opportunities to get more value for less money. “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down,” wrote Buffett.
11. Be aware of the underlying business before purchasing a stock.
Before buying a stock, the Oracle of Omaha has consistently recommended understanding the underlying business.
Speaking of himself and long-time business partner Charlie Munger, Buffett wrote in his 2022 letter to shareholders, “Charlie and I are not stock-pickers; we are business-pickers.”
Invest intelligently for your retirement, whether you have a company retirement plan, a Roth IRA, or a self-directed IRA. Some people prefer a self-directed IRA due to its variety of investment choices. That’s not a bad decision in the long run, provided you avoid investing in risky investments you don’t understand, such as crypto.
12. Avoid being greedy.
According to Buffett, investing has much more to do with the behavior of investors than with the numbers. Whenever investors are greedy and drive stock prices skyward, Buffett becomes fearful, because the market may soon plunge.
During times of a weak market or stock, Buffett becomes more interested in it because prices are lower. The reason? Generally, the risk is lower when stocks are cheaper. And this is how Buffett follows his first rule.
13. Find a competitive advantage that is durable.
Buffett encourages looking for durable competitive advantages when evaluating a business. In his own words:
“The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.”
14. Don’t swing at every pitch.
“The stock market is a no-called-strike game. You don’t have to swing at everything — you can wait for your pitch.”
Buffett’s famous quote sums up what picking opportunities is all about. Invest only when you find a good opportunity that meets your standard of potential return.
Buffett advises investors to wait for investing opportunities that are likely to lose them money. If a stock doesn’t appeal to you, you don’t need to take any risks with it.
15. Develop healthy money habits.
When Buffett spoke to students at the University of Florida in 1998, he said, “Chains of habit are too light to be felt until they are too heavy to be broken.” In other words, develop positive money habits and break unproductive ones.
Developing good money habits, such as saving automatically and creating an emergency fund, will help you boost your retirement savings. You can also practice living with less to contribute significantly to your retirement fund.
16. Maintain a well-protected investment portfolio.
Buffett once said, “After all, you only find out who is swimming naked when the tide goes out.”
What exactly did he mean by that? There are times when investing feels easy. For instance, during bull markets, rallying can be fierce and last long. Buffett, however, believes that when things get tough, we see who is truly protected and ready for the challenges ahead.
Throughout his investing career, Buffett has occasionally seemed out of touch with the current climate. However, the tide has changed. The result is that smart people are found with their trunks down.
In short, maintain a portfolio that will survive a bear market.
17. Be cautious when it comes to family finances.
There is no point in spending too much time planning what you will someday pass along to your family. The point of retirement is to enjoy your own life, not to take care of everyone else.
However, that doesn’t mean you should be selfish. Instead, you shouldn’t sacrifice your own happiness and security to help others who should also be working on theirs.
In “Tap Dancing to Work,” Buffett writes that “the perfect amount is enough money so they would feel they could do anything, but not so much that they could do nothing.” Buffett intends to leave a greater portion of his fortune to charity in place of his family.
18. Invest in yourself.
As a young man, Buffett recalls being terrified of public speaking. It was so bad that he got nauseous and panicked before speaking. To overcome his fear, he paid $100 for a Dale Carnegie training course. He even proposed to his wife halfway through the course.
A person can invest in themselves in many different ways.
For example, getting a certificate or degree is worth the effort, money, and time if you can advance in your work. Or learning that your retirement fund sponsor will withhold 20% for penalties and taxes if you cash out any portion or all of your plan before age 59 ½. In most cases, people never recover those lost earnings.
Remember, savings are only valuable if they’re used well. As such, sometimes you have to spend the savings on yourself. And, as the man himself says, “The most important investment you can make is in yourself.”
FAQs
When should I start investing for retirement?
The sooner, the better!
The reason? You’ve got compound interest on your side. Starting young allows you to grow your money exponentially. Over time, even a small contribution adds up.
How much do I need to save for retirement?
Several factors must be considered, including your desired retirement lifestyle and expected lifespan. Your financial advisor can assist you in estimating your retirement savings needs and creating a savings plan.
How much should I contribute?
As always, this depends on your circumstances, such as your risk tolerance level and financial goals. Investing 10-20% of your income is a good rule of thumb, but speaking with a financial advisor for personalized guidance is best.
What type of retirement account should I use?
Various options are available, including IRAs (traditional or Roth), 401(k)s (if your employer offers them), and employer-sponsored plans. The contribution limits, tax benefits, and withdrawal rules are different for each option, so do your research first to make sure it fits your income and goals.
How can I invest my retirement savings?
Several investment options are available for retirement accounts, including mutual funds, exchange-traded funds, and target-date funds that automatically adjust your asset allocation as you approach retirement.
What should I do with my retirement savings when I retire?
You’ll need a withdrawal strategy for your savings to last throughout your retirement. A combination of investments, annuities, and Social Security benefits should be considered.
