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How I think Warren Buffett’s advice can help you beat the State Pension

Warren Buffett is widely considered to be the best investor that ever lived. He has accumulated a fortune of nearly $90bn buying and selling shares over the past five decades, so when it comes to investing I think it is fair to say that he knows quite a bit about the topic!

Today I am going to explain why I think some of Warren Buffett’s most simple advice can help you beat the State Pension and retire in comfort even if you don’t have much experience investing.

The first rule of investing

Warren Buffett’s investment strategy is difficult to sum up in one article, but its foundations can be summed up in just one sentence.

Every single investment decision the Oracle of Omaha makes is based on his first rule of investing: “don’t lose money.” His second rule of investing is “never forget rule one“!

I think it is critical to remember these two rules if you want to beat the State Pension. The single biggest mistake most investors make is taking on too much risk, and investing in stocks and companies they do not understand. More often than not, investors that make these mistakes end up losing serious amounts of money, which is hugely detrimental to long-term wealth creation.

Buffett only invests after a rigorous assessment of the risks involved. If there is even a small chance of him losing 100% of his investment, he will not buy.

By using this strategy he is likely to have missed some outstanding opportunities over the years… but I am willing to bet that he has avoided far more disasters.

Beat the State Pension

The best way to beat the State Pension is to save regularly and invest your money. If you invest in high-risk opportunities, where you could make a lot but also lose a lot, you could be making it harder for yourself to save for retirement.

Even if you have a well-diversified portfolio of 30 positions, if just one of these goes to zero then you will lose 3.3% of the value of your portfolio in one go. Now that might not seem like a lot, but it can have a massive impact on your wealth creation.

Indeed, as I have explained before, if you want to double your State Pension in retirement then you will need to save around £250,000 for the time you decide to quit the rat race. I calculate savers will need to put away £400 a month for two decades to hit this target at an average annual return rate of 8%. However, if you suffer a permanent capital impairment of 3.3% in year 15 (portfolio value £138k), your portfolio will suffer a loss of £4,550, equivalent to around one year’s worth of savings, and effectively pushing your retirement date back by 12 months.

This simple example shows just how damaging just one total loss can be for your portfolio, and why it is essential to follow Warren Buffett’s first two rules of investing if you want to beat the State Pension!

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.