Veteran stock market player Warren Buffett, 78, has rock star status in the world of finance due to his uncanny ability to pick winning investments. His success has earned him the affectionate moniker, the Oracle of Omaha, with Omaha being the Nebraskan city in which he lives and works.
So how exactly has the chairman of investment house Berkshire Hathaway consistently managed to grow his wealth over various decades? Well, you are about to find out, because Mr Buffett regularly shares his investment secrets and here we present four of his top tips for growing your retirement income.
1. It’s not your IQ, stupid
Mr Buffett has often said it was not his IQ which helped to make him wealthy, but rather his knack for remaining cool, calm and collected.
CNBC once quoted him saying: “Even if you do have an IQ of 160, you should just give away 30 points to somebody else because you don’t need a lot of brains to be in this business.
“What you do need is emotional stability … and the ability to think independently.
“You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with a 130 IQ. Rationality is essential,” he is quoted as saying in the book, Warren Buffett Speaks.
2. Follow the leader
A fan of index or managed funds – investment vehicles that track with groups of similar companies on the stock market – Mr Buffett believes that it is better to imitate tried and proven investment strategies for the long haul, rather than trying to pick stocks yourself.
“Among the various propositions offered to you, if you invested in a very low cost index fund – where you don’t put the money in at one time, but average it over 10 years – you’ll do better than 90 per cent of people who start investing at the same time,” he once told a meeting of Berkshire Hathaway investors.
3. Don’t run with Wall St ‘wolves’
Mr Buffett’s advice for those who want to see their investments grow but don’t have the time or energy to actively manage a portfolio is to entrust your money to a slow-and-steady operator. He believes that the slick ‘Wolves of Wall St’ regularly over-promise and under-deliver, all the while allowing their commissions to eat away at your nest egg. The Oracle’s tip is to choose a low-cost fund which generously invests in bonds and big companies around the globe.
“When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients,” he said.
“In your retirement vehicles, buy the lowest-cost index funds representing the major stocks and bonds throughout the world. You can do this with two funds – then leave them alone.”
4. Stash the cash
Mr Buffett is great with analogies, such as: “Cash … is to a business as oxygen is to an individual – never thought about when it is present, the only thing in mind when it is absent.”
His investment company keeps a tidy pile of cash stashed just in case things go pear-shaped on the stock markets. This strategy helped his Berkshire Hathaway weather the Global Financial Crisis (GFC) better than most.
Yes, some of his investments may have been battered during the GFC fallout, but he was able to buy up stocks that were being dumped in fire sales. Later, when those stocks recovered, he was able to reap huge benefits.
Always keep something for a rainy day.
Do you have cash savings stored for a rainy day? Have you ever had your fingers burned playing the stock market? When share markets turn down, do you sell out or wait it out?