If you have £2k or any other amount to invest, then following Warren Buffett’s investment advice could be a sensible decision.
Warren Buffett is considered by many to be the world’s greatest investor. He didn’t get to this position by accident. The billionaire has spent decades carefully selecting stocks and buying companies.
At the core of his strategy, there are a few key rules that have never changed. By following these rules, you may be able to increase the size of your financial nest egg.
Warren Buffett’s rules
The legendary investor’s first rule of investing is to avoid losing money at all costs. This simple rule reflects Buffett’s desire to avoid investing in any companies that might see their shares fall to zero. To do this, he only buys companies he understands. And if he does not understand a particular business or sector, he stays away.
Warren Buffett also avoids buying any complex financial instruments. He will avoid things like commodities, and forex trading as these markets can be volatile and unpredictable.
Another rule the super-investor lives by is buying for the long term. Over the past 100 years, UK stocks have returned around 6% after inflation. All you would need to do to achieve this return is to buy an index fund, sit back and relax.
Warren Buffett understands that the stock market should produce steady positive returns over the long term. Even though it might see periods of volatility, over a time frame of several decades, returns are generally positive.
With this being the case, Buffett does not try to trade. Instead, he buys and holds stocks for the long run. As well as reducing the cost of trading, it also means he’s less likely to pick a dud stock.
The billionaire’s long-term mentality means some stocks have featured in his portfolio for many decades. This is another bit of advice we can learn from Warren Buffett. If something works, it makes sense to stick with it. If you’ve found a stock or fund that has produced great returns in the past, it could be best to stay invested with the firm for the long haul.
While past performance does not guarantee future success, a well-managed, high-quality company may continue to earn attractive returns for investors year after year.
Warren Buffett has issued plenty of advice on picking stocks in the past. However, he’s also said that if you’re struggling to understand the market, buying a simple index fund that tracks the market might be the better options. This might be the best strategy for investors with only a small sum to invest today.
Picking stocks can be a time-consuming process, and costly if you get it wrong. Therefore, if you’re not sure, it may be best to follow Warren Buffett’s advice and buy a simple market tracker fund instead.
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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.