Warren Buffett is one of the most successful investors of our time. And one of the greatest things about him is that he’s not shy about sharing advice in the hopes of inspiring everyday investors to take control of their financial future and grow wealth. With that in mind, here are three important things you can learn from Buffett.
1. Prepare to hold your stocks for a long time
Warren Buffett has said that if you don’t feel comfortable owning a stock for 10 years, you shouldn’t even own it for 10 minutes. And that’s a point you should take to heart as you build your portfolio.
Investors who try to make a quick buck in the stock market often wind up getting burned. A better strategy? Load up on stocks with the potential to gain value over time, and then hold on to them for many years.
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Of course, there can be exceptions to this rule. If a company undergoes big changes in management that change its outlook for the worse, you can unload its stock and replace it with something else. But for the most part, it pays to adopt a buy and hold strategy so you can benefit from long-term market gains.
2. Load up on broad market index funds
Warren Buffett is a firm believer that broad market index funds — such as S&P 500 index funds — are a solid choice for the typical investor. Now to be clear, it’s not that Buffett himself has a personal portfolio loaded with index funds. The reason? He can do better.
The purpose of index funds is to track different market benchmarks with the aim of matching their performance. If you buy broad market index funds, you won’t outperform the market like Buffett has. But what you will do is benefit when the market gains value on a whole.
The great thing about index funds is that they take a lot of the guesswork out of investing. Say you buy shares of an S&P 500 index fund. Doing so effectively lets you own 500 different companies — only without having to research individual businesses and figure out how much money you should invest in each one.
Furthermore, index funds can lend to a nice amount of diversification in your portfolio. That’s an important thing to have. A diverse portfolio can cushion you from losses during periods of stock market volatility, all the while setting you up to grow a lot of …….
