Rupakumar Pradhan, CFPCM, CWM®

Personal Financial Advisor

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Warren Buffett – Money Mantras (2)

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Warren Buffett – Money Mantras (2)

Warren Buffett – Money Mantras (2)
July 24
15:25 2017

 

Warren Buffett ‘s  -Simple Retirement Advice

Warren Buffett, has a net worth of $77.2 billion in July 2017, according to Bloomberg.

Imagine sitting down with Warren Buffett, an American business magnate, investor, and philanthropist, to discuss how you should invest for retirement.

A lot of questions come to mind.

Would he suggest buying shares of Berkshire Hathaway? Would he favor individual stocks or mutual funds?

How much would he recommend one invest in stocks versus bonds? Would he suggest investing in real estate? Would he suggest specific investments or just give general advice?

Retirement advice?

Buffett goes on even more in the letter to discuss how he’s advised the trustee’s of his estate to invest his remaining money that will be left to his family:

Warren Buffett says.

My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions, or individuals – who employ high-fee managers.”

If you remember, I wrote a piece one month ago on ‘How to become a Crorepati with nominal income?’ is essential in accumulation phase.

During distribution phase, you should invest in equity to beat inflation. Inflation affects all of us but has a greater impact once you are no longer working full-time and can’t adjust your savings to accommodate the rising costs.

Inflation has a dual impact on the investor’s hard-earned savings. It not only erodes the current purchasing power of money it also magnifies the monetary requirements for the future.

From 1928 through 2014, the S&P 500’s compound rate of return was 9.8%, enough to transform a $100 investment at the start of 1928 into $346,261 over 87 years.

The Sensex value for November 2, 1979 was 123.86 points. On October 30, 2015, 36 years later it closed at 26,656.83 points. This means a return of 16.1% per year, during the period. Hence, over the long-run Indian stocks give 16% per year.

“Successful Investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time: You can’t produce a baby in one month by getting nine women pregnant.” -Warren Buffet

In my opinion, more than 90% of your ultimate investment return depends on your choices of asset classes.

Equity Investment! Not suggesting to all.

But you can create wealth through mutual funds SIP (Systematic Investment Plan) during accumulation phase.

For individual investors, the most important part of the personal finance picture is not financial at all. It is behavioral.

You can choose your asset allocation (Equity: Debt) as per your risk appetite – as 50:50, 60: 40, 70:30, 80:20 or 90:10.

Creating your Asset Allocation, It depends upon your investment time horizon, risk appetite, fund size, investment experience, financial behavior and few other factors.

However, It may surprise you how much inflation can erode purchasing power due to building a very conservative portfolio during retirement.

Forget all retirement myths, you should build a investment portfolio with a minimum of 50% to a maximum of 90% in equity to outlive the money.

Smart investors will point out that Buffett has managed his own money differently than this though. The rules he follows for his own investments are unique, and that’s why he’s the world’s most successful investor.

 

I am a CERTIFIED FINANCIAL PLANNERCM. For the moment, I have shared my experience growing up with you because it had a tremendous impact on how I do what I do.

If you have a question about your own financial situation please connect with me.  I’d be delighted to try to be of service.

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About Author

Rupakumar

Rupakumar

Mr. Pradhan has over 20 years of experience in financial services industry. He was previously working with leading Life Insurance Companies, Broking Firms, Distribution Company, Financial Planning Company and Health Insurance Company. He has cleared several NCFM modules & is also AMFI Certified. His expertise is in Comprehensive Financial Planning, Technical Analysis, Portfolio Management, Investment Advisory, Wealth Management & Business Development.

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