What is Warren Buffett's favorite way to invest?
Buffett has long advised most investors to use index funds to invest in the market, rather than trying to pick individual stocks. By picking individual stocks you're working against the pros who have extensive intelligence on companies.
Warren Buffett is perhaps the best example of the power of long-term compounding. Buffett uses compound interest, dividend reinvestment, and the power of constantly reinvesting the operating cash flow generated by Berkshire's businesses to his advantage.
Buffett has said one of the best ways to build your retirement savings is to “consistently buy an S&P 500 low-cost index fund. I think it's the thing that makes the most sense practically all of the time.”
Invest in yourself
Not all of Buffett's investing advice has been about investing. One of his most important nuggets of wisdom is: "The most important investment you can make is in yourself."
Patience and Long-Term Focus
Buffett is known for his unwavering patience. He doesn't jump in and out of investments. Instead, he chooses stocks based on their long-term potential and often holds them for decades.
Buffett uses the average rate of return on equity and average retention ratio (1 - average payout ratio) to calculate the sustainable growth rate [ ROE * ( 1 - payout ratio)]. The sustainable growth rate is used to calculate the book value per share in year 10 [BVPS ((1 + sustainable growth rate )^10)].
The percentage may shock you.
Part of the cash would go directly to his wife and part to a trustee. He told the trustee to put 10% of the cash in short-term government bonds and 90% in a low-cost S&P 500 index fund.
Buffett's headline rule is “don't lose money” and his second rule is “don't forget rule one”. This might sound obvious. Of course, it is. But it's important to look at the message within.
Warren Buffet's 2013 letter explains the 90/10 rule—put 90% of assets in S&P 500 index funds and the other 10% in short-term government bonds.
So Buffett says he reads around 5-6 hours daily, including newspapers, magazines, 10Ks, annual reports, and biographies. For Buffett, reading is priority number one. While most executives focus on networking or analyzing financials, Buffett dedicates the majority of his workday to reading.
How to make money in a recession Warren Buffett?
As Buffett famously wrote in a 2008 op-ed for The New York Times: “Be fearful when others are greedy, and be greedy when others are fearful.” This essentially means that when others are fearful of investing money — like ahead of or during a recession — you should take advantage by scooping up stocks and other assets at ...
"The first rule of an investment is don't lose [money]. And the second rule of an investment is don't forget the first rule. And that's all the rules there are." This quote from legendary billionaire investor Warren Buffett has become one of his most well-known aphorisms.
Warren Buffett's Unwavering Choice: The 2014 Cadillac XTS
Buffett's current vehicle, the 2014 Cadillac XTS that he has owned for approximately ten years, is a testament to his reputation for frugality.
Buffett's Two Lists is a productivity, prioritisation and focusing approach where you write down your top 25 goals; circle your 5 highest priorities; then focus on those 5 while 'avoiding at all costs' doing anything on the remaining 20.
Indeed, the Oracle of Omaha has said that he spends “five or six hours a day” reading books and newspapers. And while it may be difficult to set aside nearly a full work day's worth of hours to read, it recently got a little bit easier to consume information like Warren Buffett.
Warren Buffett 1930–
Rule No 1: never lose money. Rule No 2: never forget rule No 1. Investment must be rational; if you can't understand it, don't do it. It's only when the tide goes out that you learn who's been swimming naked.
A 70/30 portfolio is an investment portfolio where 70% of investment capital is allocated to stocks and 30% to fixed-income securities, primarily bonds.
Consider investing in an S&P 500 index fund
An S&P 500 index fund aims to mirror the performance of the S&P 500 index. Buffett's retirement strategy, known as the 90/10 strategy, involves allocating 90% of retirement funds to a low-cost S&P 500 index fund and the remaining 10% to low-risk short-term government bonds.
There are no set ages to get into or to get out of the stock market. While older clients may want to reduce their investing risk as they age, this doesn't necessarily mean they should be totally out of the stock market.
Things that don't depreciate in value are things that don't lose their qualities as time passes or things that actually increase in value with the passage of time. These include goodwill, luxurious items, high-quality art, gems, alcoholic beverages, and land.
What was Warren Buffett's best quote?
- "The stock market is designed to transfer money from the Active to the Patient." ...
- "Risk comes from not knowing what you're doing." ...
- "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." ...
- "The best investment you can make is in yourself."
Applying the 1% Rule in a Single Trade
Determine your risk capital, i.e., the total amount of money you're willing to risk in your trading. This should be money that you can afford to lose without it affecting your lifestyle. Calculate 1% of your risk capital.
Berkshire has built a fortress balance sheet over the past 58 years with a record $167.6 billion in cash, equivalents, and short-term investments on hand at the end of 2023: A chart showing Berkshire Hathaway's cash pile from 2017 to 2023.
- Rule 1: Never lose money. This is considered by many to be Buffett's most important rule and is the foundation of his investment philosophy. ...
- Rule 2: Focus on the long term. ...
- Rule 3: Know what you're investing in.
Understanding the 10-5-3 Rule
The 10-5-3 rule is a simple rule of thumb in the world of investment that suggests average annual returns on different asset classes: stocks, bonds, and cash. According to this rule, stocks can potentially return 10% annually, bonds 5%, and cash 3%.
References
- https://moneywise.com/a/ch-aol/hybrid-its-not-taxed-at-all?throw=C3DM1
- https://www.investopedia.com/articles/mutualfund/05/etfindexfund.asp
- https://finance.yahoo.com/news/11-ways-warren-buffett-lives-143051871.html
- https://www.nerdwallet.com/article/investing/best-index-funds
- https://portfolioslab.com/tools/stock-comparison/QQQ/VGT
- https://www.fool.com/investing/2024/03/31/is-invesco-qqq-trust-a-buy/
- https://www.tipranks.com/etf/voo/forecast
- https://www.nasdaq.com/articles/qqq-etf:-still-attractive-after-dazzling-2023-gains
- https://www.lazyportfolioetf.com/comparison/warren-buffett-vs-us-stocks/
- https://www.cnbc.com/2023/11/11/5-must-read-books-from-warren-buffet-that-are-now-free-on-spotify.html
- https://home.csulb.edu/~pammerma/fin382/screener/buffett4.htm
- https://www.marketwatch.com/picks/this-is-warren-buffetts-first-rule-about-investing-heres-what-to-do-if-your-financial-adviser-breaks-that-rule-01635799738
- https://www.nasdaq.com/articles/warren-buffett-says-make-money-while-you-sleep:-here-are-5-forever-assets-to-buy-now
- https://finance.yahoo.com/news/12-best-performing-p-500-133513930.html
- https://www.forbes.com/advisor/investing/best-warren-buffett-stocks/
- https://www.trackinsight.com/en/fund/QQQ
- https://www.fool.com/investing/2024/02/07/warren-buffett-investments-recommends-most/
- https://www.nerdwallet.com/article/investing/etf-vs-index-fund-compare
- https://finhabits.com/what-is-the-10-5-3-rule-of-investment/
- https://www.thrivent.com/insights/investing/how-to-invest-during-inflation
- https://www.fool.com/investing/2023/08/30/warren-buffett-turns-93-best-investing-advice-ever/
- https://www.invesco.com/qqq-etf/en/performance.html
- https://www.nasdaq.com/articles/if-you-invested-in-apple-when-warren-buffett-did-heres-how-much-you-would-have-made
- https://www.nerdwallet.com/article/investing/best-etfs
- https://homework.study.com/explanation/what-are-the-things-that-don-t-depreciate-in-value.html
- https://medium.com/@blakejwise/in-short-setting-priorities-with-warren-buffets-5-25-rule-fe1daf41da95
- https://www.investopedia.com/ask/answers/061715/what-qqq-etf.asp
- https://finance.yahoo.com/news/warren-buffetts-no-1-investing-132715262.html
- https://seekingalpha.com/article/4669862-voo-at-all-time-highs-is-still-a-buy
- https://www.usatoday.com/money/blueprint/investing/best-sp-500-index-funds/
- https://finance.yahoo.com/news/5-things-warren-buffett-says-193334180.html
- https://www.fool.com/investing/2024/03/01/berkshire-hathaway-is-hoarding-168-billion-in-cash/
- https://www.investopedia.com/articles/personal-finance/121815/buffetts-9010-asset-allocation-sound.asp
- https://finance.yahoo.com/news/skyrocketing-615-why-does-warren-173000847.html
- https://money.usnews.com/investing/articles/best-etfs-to-buy
- https://www.investors.com/etfs-and-funds/etfs/sp500-cheap-etf-pays-off-more-than-everything-else-long-term/
- https://www.newtraderu.com/2023/10/17/warren-buffett-i-read-5-6-hours-a-day/
- https://www.thestreet.com/etffocus/trade-ideas/buy-this-not-that-etf-alternatives-to-qqq-qqqm
- https://www.fool.com/investing/how-to-invest/famous-investors/warren-buffett-investments/
- https://www.afr.com/work-and-careers/management/inside-warren-buffetts-daily-work-routine-from-645am-to-1045pm-20170906-gybn7t
- https://www.investopedia.com/articles/investing/011316/pros-and-cons-indexes.asp
- https://www.fool.com/investing/general/2013/09/21/the-best-performing-stock-on-the-sp-500-since-1980.aspx
- https://investor.vanguard.com/investment-products/mutual-funds/profile/vfiax
- https://money.usnews.com/investing/articles/high-paying-dividend-stocks-in-the-s-p-500
- https://www.forbes.com/advisor/in/investing/index-funds-vs-mutual-funds/
- https://www.etmoney.com/blog/how-long-can-we-invest-in-index-funds/
- https://apnews.com/buyline-personal-finance/article/what-to-do-when-the-stock-market-crashes
- https://stockanalysis.com/etf/compare/qqq-vs-voo/
- https://www.linkedin.com/pulse/what-makes-warren-buffett-successful-simon-crawford-welch-ph-d-rrp
- https://finance.yahoo.com/news/warren-buffett-reveals-instructions-invest-163624653.html
- https://www.fool.com/investing/2024/03/17/before-you-buy-the-vanguards-sp-500-etf-here-are-3/
- https://www.forbes.com/advisor/investing/etf-vs-index-fund/
- https://www.quora.com/What-percentage-of-your-portfolio-is-index-funds
- https://www.nasdaq.com/articles/heres-how-much-youd-have-if-you-invested-%2410000-in-apple-stock-when-warren-buffett-first
- https://moneywise.com/life/lifestyle/hybrid-its-not-taxed-at-all?throw=C3DM1
- https://blogs.law.ox.ac.uk/oblb/blog-post/2023/04/giant-asset-managers-big-three-and-index-investing
- https://www.nasdaq.com/articles/here-are-the-2-warren-buffett-investments-he-recommends-the-most
- https://www.nerdwallet.com/article/investing/sp-500-etfs
- https://beatmarket.com/blog/qqq-vs-spy/
- https://www.nasdaq.com/articles/earnings-could-be-strong-in-2024.-consider-qqq-qqqm
- https://finance.yahoo.com/news/vanguard-p-500-etf-voo-112006029.html
- https://www.screener.in/screens/355766/highest-return-in-1-year/
- https://uk.finance.yahoo.com/news/no-savings-30-d-warren-085000330.html
- https://www.nasdaq.com/articles/5-best-nasdaq-etfs-to-invest-in
- https://www.nasdaq.com/articles/got-%24500-a-month-to-invest-heres-how-the-sp-500-could-make-you-a-millionaire
- https://www.paladinregistry.com/blog/retirement/warren-buffetts-saving-and-investing-tips-for-retirees/
- https://ptmwealth.com/articles/warren-buffetts-best-quotes
- https://www.investopedia.com/ask/answers/033015/whats-difference-between-index-fund-and-etf.asp
- https://finance.yahoo.com/quote/VOO/performance/
- https://finance.yahoo.com/news/1-warren-buffett-etf-could-100000820.html
- https://www.investing.com/academy/trading/warren-buffett-investment-strategy-rules-fortune/
- https://www.newtraderu.com/2024/01/09/current-warren-buffett-car-2024-what-car-does-this-billionaire-own/
- https://www.investopedia.com/articles/financial-theory/08/buffetts-road-to-riches.asp
- https://money.usnews.com/investing/articles/best-vanguard-funds-for-beginner-investors
- https://www.nasdaq.com/articles/warren-buffett%3A-12-things-poor-people-squander-money-on
- https://www.thestreet.com/investing/warren-buffett-berkshire-stock-investor
- https://www.usatoday.com/money/blueprint/investing/best-sp-500-etfs/
- https://www.composer.trade/learn/what-is-a-90-10-portfolio-strategy
- https://portfolioslab.com/tools/stock-comparison/QQQ/VOO
- https://www.nerdwallet.com/article/investing/sp-500-index-fund
- https://www.nerdwallet.com/article/investing/how-to-invest-in-sp500
- https://modelthinkers.com/mental-model/buffetts-two-lists
- https://finance.yahoo.com/news/more-money-investing-10-000-220010726.html
- https://www.investopedia.com/stock-analysis/2012/7-of-the-highest-stock-prices-in-history-brk-b-aapl-seb-nvr1114.aspx
- https://www.fool.com/investing/2024/02/22/1-warren-buffett-index-fund-can-turn-450-to-983800/
- https://finance.yahoo.com/news/warren-buffett-sitting-record-167-182900063.html
- https://www.schwab.com/learn/story/etf-vs-mutual-fund-it-depends-on-your-strategy
- https://www.physicianonfire.com/voo-vs-qqq-which-index-etf/
- https://www.fool.com/investing/2022/02/12/should-index-funds-be-your-only-investment/
- https://portfolioslab.com/tools/stock-comparison/VGT/QQQ
- https://stockanalysis.com/article/voo-vs-vti/
- https://financhill.com/blog/investing/which-bank-stocks-does-warren-buffett-own
- https://money.com/warren-buffett-stock-market-casino/
- https://www.fool.com/investing/2024/01/24/billionaires-cant-get-enough-of-this-etf-in-2024/
- https://www.fool.com/the-ascent/buying-stocks/articles/what-are-warren-buffetts-5-rules-of-investing-and-how-can-you-use-them-to-your-benefit/
- https://www.investopedia.com/ask/answers/how-can-i-buy-sp-500-fund/
- https://www.businessinsider.com/warren-buffett-indicator-stock-market-outlook-bubble-crash-ai-tech-2024-3
- https://www.forbes.com/sites/jimosman/2023/12/26/buffetts-longer-term-slump-time-to-rethink-value-investing/
- https://www.investopedia.com/world-s-11-greatest-investors-4773356
- https://coinpriceforecast.com/qqq-stock
- https://finance.yahoo.com/news/buffett-favors-vanguard-p-500-155700933.html
- https://www.stash.com/learn/how-to-invest-in-sp500-2/
- https://www.bankrate.com/investing/warren-buffett-top-investment-advice/
- https://www.forbesindia.com/article/explainers/top-10-index-funds-in-india/90271/1
- https://pepperstone.com/en-af/market-analysis/trading-guides/one-percent-rule-in-day-trading/
- https://www.oxfordreference.com/display/10.1093/acref/9780191866692.001.0001/q-oro-ed6-00012078