“It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” Buffett got his start buying the cheapest stocks he could find, but over time he evolved to focus on businesses with strong underlying economics.
Index funds are best for most people
Despite making his fortune as an active investor, Buffett acknowledges that most people will get better results by investing in a broadly diversified low-cost index fund.
Warren Buffett, one of the world's most successful investors, has shared plenty of advice over his long career. But one piece of advice stands out as his top rule: “The first rule of investment is don't lose money.” And if you ask about the second rule?
Rule 1: Never lose money.
By following this rule, he has been able to minimize his losses and maximize his returns over time. He emphasizes this so much that he often says, “Rule number 2 is never forget rule number 1.”
Many novice investors lose money chasing big returns. And that's why Buffett's first rule of investing is “don't lose money”. The thing is, if an investors makes a poor investment decision and the value of that asset — stock — goes down 50%, the investment has to go 100% up to get back to where it started.
Rule No.
1 is never lose money.
What Is a 70/30 Portfolio? A 70/30 portfolio is an investment portfolio where 70% of investment capital is allocated to stocks and 30% to fixed-income securities, primarily bonds. Any portfolio can be broken down into different percentages this way, such as 80/20 or 60/40.
By following these four golden rules—starting early, investing regularly, thinking long-term, and diversifying—you set yourself up for a successful investing journey. Remember, the goal isn't just to make money but to build wealth in a sustainable, low-stress way.
YOUR INVESTMENT PORTFOLIO
In this case, many investors will find that roughly 20% of their investment holdings will lead to about 80% of their growth. While these percentages won't be exact, the general rule applies that a small number of your investments will result in the most growth.
According to Buffett, you should invest 90% of your retirement funds in stock-based index funds. According to Buffett, the remaining 10% should be invested in short-term government bonds. The government uses these to finance its projects.
Despite being the sixth-richest person globally, Warren Buffett continues to drive a 2014 Cadillac XTS he purchased with hail damage. Although he can afford any luxury vehicle, Buffett prefers the practicality of his 10-year-old car.
Fixed annuities are considered low-risk because they have a guaranteed minimum crediting rate for the term you select. That means that, as long as you keep your money in the account for the entire term, you know exactly what your return will be — you won't lose money.
For instance, Buffett urges the average investor to purchase index funds. “Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund,” he wrote in his 2013 letter to Berkshire Hathaway shareholders. Buffett has given this advice for years.
9 “The key to making money in stocks is not to get scared out of them.”-Peter Lynch. A great quote from another legendary fund manager, this statement underscores the importance of staying invested even during market downturns. Fear and panic can lead to selling at the wrong time and missing out on long-term gains.
Buffett follows the Benjamin Graham school of value investing which looks for securities with prices that are unjustifiably low based on their intrinsic worth. Buffett looks at companies as a whole rather than focusing on the supply-and-demand intricacies of the stock market.
Always sell a stock it if falls 7%-8% below what you paid for it. This basic principle helps you always cap your potential downside. If you're following rules for how to buy stocks and a stock you own drops 7% to 8% from what you paid for it, something is wrong.
One simple rule of thumb I tend to adopt is going by the 4-3-2-1 ratios to budgeting. This ratio allocates 40% of your income towards expenses, 30% towards housing, 20% towards savings and investments and 10% towards insurance.
Top Warren Buffett Stocks
Kraft Heinz (KHC), 325.6 million. Apple (AAPL), 300 million. Occidental Petroleum (OXY), 264.3 million. American Express (AXP), 151.6 million.
Buffett's Two Lists is a productivity, prioritisation and focusing approach where you write down your top 25 goals; circle your 5 highest priorities; then focus on those 5 while 'avoiding at all costs' doing anything on the remaining 20.
Warren Buffett has said that 90 percent of the money he leaves to his wife should be invested in stocks, with just 10 percent in cash. Does that work for non-billionaires? As far as asset allocation advice goes, 90 percent in stocks sounds pretty aggressive.
The result is the number of years, approximately, it'll take for your money to double. For example, if an investment scheme promises an 8% annual compounded rate of return, it will take approximately nine years (72 / 8 = 9) to double the invested money.
The 90/10 investment rule is a rule of thumb for setting up your investment portfolio. The rule is relatively simple, advocating for splitting your portfolio, placing 90% of your assets into a low-cost S&P 500 index fund and the remaining 10% into short-term government bonds.
A popular standard for budgeting rent is to follow the 30% rule, where you spend a maximum of 30% of your monthly income before taxes (your gross income) on your rent. 1 This has been a rule of thumb since 1981, when the government found that people who spent over 30% of their income on housing were "cost-burdened."