Warren Buffett is one of the most quoted men in history, and rightly so. Buffett offers some of the very best investment advice in the world, and he presents it in a folksy, easy-to-understand way that everyone can follow. The fandom surrounding Buffett has reached such a fever pitch that every spring thousands of people attend Berkshire Hathaway’s annual meeting just to be near the “Oracle of Omaha.”
While Buffett has shared countless gems regarding investing, perhaps his greatest piece of advice is to simply keep investing. Here’s what Buffett said about the topic, what his advice really means and how you can incorporate it into your investing life.
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Warren Buffett’s Advice
Buffett shared his advice during an interview with CNBC, in which he suggested that savers should continually buy shares in an S&P 500 index fund, and simply keep buying it “through thick and thin, especially through thin.” According to Buffett, this is not only an easy way to build a strong retirement fund but also generational wealth.
What To Do If Times Are Hard
If times are hard, that’s an even better opportunity to pick up shares in the S&P 500, according to Buffett. His encouragement to buy “through thick and thin, especially through thin,” means it’s time to add even more to your S&P 500 investment if it trades down in value. Buffett understands that when the market goes down, investors are generally tempted to sell, rather than buy. But as Buffett points out, that’s the worst time to sell, as you are unloading shares when the price is low, and then buying back when prices are high.
As Buffett told CNBC, “When you see bad headlines in newspapers, we say, ‘Well maybe I should skip a year.’ Just keep buying it… American business is going to do fine over time, so you know the investment universe is going to do very well.”
Why Warren Buffett Believes So Strongly in This Advice
In his 2017 letter to his Berkshire Hathaway shareholders, Buffett explained why he believes in low-cost index funds. “When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients,” Buffett said. “Both large and small investors should stick with low-cost index funds.”
Beyond the cost, Buffett is also a firm believer in the long-term success of the United States. In his 2021 letter to shareholders, he explained his belief in America, saying, “In its brief 232 years of existence… There has been no incubator for unleashing human potential like America… Despite some severe interruptions, our country’s economic progress has been breathtaking. Our unwavering conclusion: Never bet against America.”
The low cost of S&P 500 index funds and the long-term success of American companies are the reasons Buffett believes it’s always a good time for the average investor to buy more shares of the index.
Why Doesn’t ‘The Oracle of Omaha’ Put His Money Where His Mouth Is?
If an S&P 500 index fund is “the best choice” for most investors, why doesn’t Buffett invest the Berkshire Hathaway portfolio in it? The answer is that Buffett and his portfolio managers are experts at identifying undervalued businesses. They also have the capital to get better deals on certain investments than individuals can.
In other words, Buffett and his managers have the time, the money and the expertise to pick long-term winning investments that can actually outperform the S&P 500. The proof of this is in the numbers. From 1965 through 2022, the S&P 500 returned a respectable 24,708% to investors. Berkshire Hathaway returned an incredible 3,787,464% over that same time period. Rather than the $2.4 million you’d have if you invested in the S&P 500, you’d have closer to $355 million by investing in Buffett and Berkshire Hathaway.
Still, Buffett left instructions with his trustee that after he passes away, he wants 90% of his assets invested in an S&P 500 index fund for his wife and heirs. This alone speaks to Buffett’s strong belief in the power of continually buying the S&P 500.
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How To Incorporate Buffett’s Advice Into Your Investment Strategy
Although Buffett’s advice isn’t exactly groundbreaking–many financial advisors encourage their clients to do the same thing–the fact that it comes from one of the richest people in the world, and one with demonstrated, long-term investment success, gives it more weight for many investors. To incorporate this advice into your own investment strategy, follow these simple steps:
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Select a low-cost S&P 500 index fund.
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Set up your account for automatic transfers on a weekly or monthly basis.
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Reinvest dividends.
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Maintain your contributions– or even increase them–when the market is down.
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Avoid selling unless absolutely necessary, particularly when the market is down.
These simple steps will help you follow Buffett’s investment advice and set you up for long-term success.
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This article originally appeared on GOBankingRates.com: Warren Buffett’s ‘Simple Trick’ To Building Wealth: ‘Just Keep Buying’
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