Eighty-eight-year-old Warren Buffett doesn’t exactly make for a daunting figure. With his friendly grin and open countenance, Buffet gives off very approachable energy. Yet he is the third richest person in the world and the most powerful man in Wall Street. The billionaire started buying stocks at the young age of 11 and has built his empire to a net worth of $82.5 billion over almost 9 decades.
So how did he do it? Here are Warren Buffet’s 5 best tips for investing in the stock market.
1. Playing the Long Game
Most people have no patience these days. They want to double their money but they also want their profits now. However, investing in stocks is a long game according to billionaire Warren Buffet. And patience is key. You can’t jump in and out of the stock market and expect amazing results.
There is a particular art for buying and selling stocks to maximize profits. And it is based on data that shows how the market always goes up in the long run. So you should only invest in stocks if you are willing to wait for profits. Even Buffet doesn’t know how the market is going to shift in a week or month. But he can predict where trends will lead in 10 years or 20. And that is how he has made his wealth.
2. Diversify Your Portfolio
Buying the same kind of stocks or investing in the same type of companies is the worst mistake you can make. You want to minimize your risk. And the only way to do that is by diversifying your portfolio. Make higher and lower risk investments. Purchase consistently. If you have a certain amount to invest don’t put it all in today. Spread it out over the next weeks and months.
3. Stocks Over Bonds Always
Everyone wants to save. But choosing where to place your money is the hardest part of investing. Often people lock their money in bonds thinking there’s less risk involved. But Buffet insists that this choice is uninformed and mislead. Because you can purchase a 10-year bond but the profit percentage on that won’t increase. Contrarily, putting your money in a stable business will return many times that profit in the long run.
For example, a government bond can go from 2.35 percent to 2.52 percent over a 10 year period. But the SP 500 Index returns yearly profits at over 10.2 percent over 30 years. So common sense would tell you to always choose stocks over bonds. Generally, it is a better idea to invest in stocks if you are willing to wait 20-30 years for returns. But if you want short term returns in 10 years or less you should probably go with bonds.
4. Don’t Wait
It is true that the stock market goes up and down on a day to day basis. But relatively speaking there is no one time to enter the market that is better than any other. The quicker you start investing the faster you will end up benefiting. If you keep waiting for a more opportune time you’ll just end up wasting a valuable opportunity.
5. Remain Unemotional
A big reason people don’t invest in stocks is because of the risk they believe is involved. And while it is true that the market fluctuates up and down on a day to day basis Warren Buffet says it doesn’t matter. Anyone who gets worried over these daily fluctuations has no business investing in stocks according to Buffet.
You have to be educated about what you’re investing in. And trust in the profits that will return to you in the long term. In conclusion, make informed decisions, be patient and invest wisely!