Even if you’re new to investing and saving, and heck, even if you’re not at all, the Warren Buffett name is probably still familiar to you.
The finance guru and CEO of Berkshire Hathaway has decades of experience teaching Americans how to grow their money by finding value. This method hasn’t just proven lucrative for Berkshire shareholders; It has made Buffett one of the richest people in the world.
But even for those of us who aren’t looking for extraordinary fortune, the Oracle of Omaha has some great advice, which he shared in an interview with CNBC.
The simple “trick” for retirement provision
There’s a reason the word “trick” is in quotes: it’s hardly a trick, more of a different mindset.
In the CNBC interview, Buffett advised savers to buy S&P 500 stocks and by all means keep doing so. That’s key not only to having a strong retirement fund, but also having more cash on hand to pass on to family, he said.
“Keep buying through thick and thin,” he said. “Especially through thin.”
Buffett explained that it can be incredibly tempting to sell when the market is selling and buy when the market is buying. However, this means you are not getting the best deal for your money.
“When you see bad headlines in newspapers, we say, ‘Maybe I should skip a year.’ Just keep buying it,” he said.
When you buy the S&P 500, you’re buying the biggest and best companies in the country. So, like Buffett, you just have to remain confident that these companies will bounce back.
“The American business will do well over time, so you know the investment universe is going to do very well.”
A proven formula
Buffett’s track record shows he’s adept at building wealth. Since he bought his first shares in 1941, his net worth has grown from $5,000 (about $108,000 in today’s dollars according to the Official Data Foundation) to over $110 billion today, according to Bloomberg.
But the success owes much more than just buying growth stocks, he said.
The story goes on
“The trick is not in choosing the right company. Most people aren’t equipped for that, and I often make mistakes when I do that,” he told CNBC. “The trick is to buy essentially all of the big companies across the S&P 500. And we do it consistently and in a very, very cost-effective way.” Because when it comes to investing, it really comes down to cost.”
When investing in the future, Buffett advises paying attention to the fine print. Beating inflation with returns of 7% or more can seem pretty great, but management fees can eat into your retirement savings significantly, Buffett said.
“If the rate of return is 7% or 8% and you’re paying 1% in fees, that makes a huge difference in how much money you’re going to have in retirement,” he said.
Even half the fees can add up. For example, an annual fee of just 0.50% would eat up $500 each year from a $100,000 investment. That’s $10,000 in fees over 20 years just on the capital alone, not to mention how much your investment gains will eat up over time.
It’s true that fees are unavoidable in many cases: Even low-cost S&P 500 index funds have fees. So do your research and you can come up with a list of the cheapest options. Then, as Buffett says, if you keep contributing for decades, you’ll have plenty in retirement.
“I think it’s the thing that almost always makes sense,” Buffett said on CNBC.
This article is for informational purposes only and should not be taken as advice. The provision is made without any guarantee.