If you’re looking for a simple plan to build your retirement savings, one of the world’s most successful stock market investors has some clear advice.
Warren Buffet advice to on retirement is as follows.
Consistently buys an S&P 500 low-cost index fund. Warren Buffet thinks it’s the thing that makes the most sense practically all of the time. He also suggests staying the course, despite market fluctuations and keep buying it through thick and thin, and especially through thin.
In regards to the mixed economic data and poor results, Buffett suggested investors should take the gloomy news with a grain of salt, however. The temptation when seeing bad headlines in newspapers is to postpone or maybe should skip a year or something. But he keeps to his advice for just keep buying it. According to him, American business is going to do fine over time, and the investment universe is going to do very well.
As proof of the record of long term growth, he remarked that the Dow Jones Industrial Average went from 66 to 11,497 in one century, and recalling the index’s exact close at the end of 1999 and since that century has ended it’s more or less doubled again.
Don’t be a stock picker
An index fund is a way to avoid the risk of picking individual stocks. Warren Buffet reminds that 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.
The fee savings built into low-cost index funds. The largest such S&P 500 fund, Vanguard’s 500 Index Fund, boasts expense ratios of less than a percentage point. According to Warren Buffet costs really matter in investments and he, himself who in the past has taken aim at costly funds. According to him, if returns are going to be seven or eight percent and people are paying one percent for fees that makes an enormous difference in how much money is going to have in retirement.
Investors can keep more of their retirement savings by cutting investment costs, by reducing management fees or commissions charged by financial advisors. He reminds that the person you’re talking to (financial advisors) and the fees are their income. In the end, it leaves the money goes to them and it would better get something for it. And in this case, it really doesn’t get it in investment management. Warren Buffet is also mentioned 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.
Most employer-run 401(k) retirement plans offer multiple mutual funds with different assets strategies, but Buffett warned against going with those options, and he mentions that it will be well with an S&P index.
In addition, he advises that don’t let financial advisors discuss other index funds, for example in the foreign or maybe picking a better industry and it will almost always comes with bigger fees.
He conceded that luck can play a role. “Sure, some are going to have better than average just but the fact that if you flip a coin, some are going to call heads and some are going to call tails. And one or the other will be right at that time.”