Warren Buffett is the greatest investor of all time, having amassed a net worth of over $80bn through the stock market. So, if you’re looking for advice that could help you boost your pension or ISA savings, it makes sense to listen to Buffett’s tips. With that in mind, here are three gems from Buffett that could help you grow your wealth over the long run.
Stocks are better long-term investments than bonds
When it comes to choosing assets for a long-term portfolio, Buffett “would much rather own many common stocks than bonds,” he told CNBC earlier this year. “If I had a choice today for a 10-year purchase of a 10-year bond at whatever it is … or buying the S&P 500 and holding it for 10 years, I’d buy the S&P,” Buffett said.
It’s no surprise he favours stocks over bonds as research shows stock returns have outperformed bond returns by a wide margin over the long term. Here in the UK, the latest annual Barclays Equity Gilt Study showed that, since 1899, British stocks have returned 4.9% a year above the rate of inflation, compared to 1.3% for UK bonds. So, if you’re looking to boost the value of your savings over the long term, stocks are most likely your best bet.
Invest in what you understand
Another excellent piece of Buffett advice is that when investing money, it’s a sensible idea to stick to what you know. “Never invest in a business you cannot understand,” he says. The reason this is good advice is that it’s easy to lose money if you don’t have a good understanding of what you’re investing in. Losing money can really set you back – when building wealth, capital preservation is critical.
What’s particularly interesting about Buffett is that he’s made a great deal of money from companies that have relatively simple business models, such as The Coca-Cola Company and American Express. This goes some way to proving that in order to make money from stocks, you don’t need a complex investment strategy.
Be greedy when others are fearful
Finally, if you’re looking to boost your wealth, it’s worth considering this Buffett gem: “I will tell you how to become rich. Be fearful when others are greedy. Be greedy when others are fearful.”
I see this tip is particularly relevant right now, as I think there’s a good chance we could see a sizeable stock market correction in the next year or so, given the fact that global growth is slowing.
If you panic in this scenario, like many other investors are likely to do, you could make irrational investment decisions. However, if you follow Buffett’s advice and capitalise while others are fearful, you could do very well for yourself.
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