Warren Buffett could have retired many, many years ago. And yet, the ‘Sage of Omaha’ keeps turning up at his office well into his 90s. He simply loves what he does.
I’m not yearning to retire either. However, I do like the idea of having that option available to me earlier than I might normally expect. Fortunately, a lot of Buffett’s wisdom is applicable, regardless of what specific targeted retirement age is in mind.
Develop good habits
“Most behavior is habitual, and they say that the chains of habit are too light to be felt until they are too heavy to be broken,” Buffett once said.
The possibility of retiring early will be lost if my day-to-day financial behaviour doesn’t fit in with this goal. So before getting stuck into investing, it’s vital to adopt the right habits that will serve rather than impede my progression.
For Buffett, these include not taking on credit unnecessarily and keeping some cash in reserve for unexpected costs. Interestingly, these are things he then takes forward into the market.
Leverage, Buffett believes, is not required for most investors to make money. He’s also well known for keeping a healthy amount of money on the sidelines and waiting for opportunities to emerge.
Ongoing education is also key for Buffett. This need not involve pursuing academic qualifications. Simply developing knowledge of personal finance and companies through regular reading could help bring a investor closer to financial independence. Buffett spends most of his working days doing just that.
Money for nothing
“If you don’t find a way to make money while you sleep, you will work until you die“.
While Buffett might be exaggerating here, I’d agree with the overall sentiment. Fortunately, the stock market can be a great way of passively growing wealth. By contrast, becoming a landlord means regularly dealing with ongoing maintenance issues and potentially troublesome tenants.
Naturally, there’s more than one way to grow rich via equities. Some Fools may be inclined to invest in high-growth stocks. As many investors in Tesla will attest, these have the potential to generate life-changing returns if bought early enough.
Of course, multi-bagging stocks like the electric car maker aren’t all that common. The ride to riches can also be a bumpy one.
Taking on excessive risk isn’t Buffett’s style. Conscious of the need to sleep well, he made his billions by investing in already-established giants such as Coca-Cola and American Express and simply holding on.
Learn to detach
A third tip from Warren Buffett’s playbook goes deeper than adopting sound habits and buying great stocks. It’s more to do with what actually goes on in our heads when the market is open.
“The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.”
In practice, this means running a portfolio as if it were a business. It’s not about proving other investors wrong and/or looking for excitement. It’s about keeping emotions in check, making sound decisions, based on my own risk tolerance and time horizon, and recognising that setbacks are inevitable.
And if I can buy stakes in businesses when others are fearful (as Buffett also suggests) then the option of retiring early might just come my way.
