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After nearly seven decades of experience, investing legend Warren Buffett has accumulated more than $142 billion in personal wealth — and the Oracle of Omaha believes much of his success is based on his ability to avoid losing money.
Buffett has always advocated a long term investment approach – which is perhaps the reason why his strategies resonate with millions of people.
“You only have to do a very few things right in your life so long as you don’t do too many things wrong,” he once said.
With that in mind, here are three investment mistakes you should avoid in order to secure your fortune for the long term.
1. Speculating instead of investing
Some investors fail to recognize the difference between a speculative asset and an investment-worthy asset. According to Buffett, the difference is in how the asset generates a return.
“All investment is laying out some money now to get more money back in the future,” Buffett once explained. “Now, there’s two ways of looking at getting the money back. One is from what the asset itself will produce. That’s investment. [The other] is from what somebody else will pay you for it later on, irrespective of what the asset produces. And I call that speculation.”
Buffett believes that assets that produce income organically — such as farmland, profitable companies, dividend stocks and real estate investment trusts — are investment-worthy.
Real estate has historically been less speculative than stocks, with stable returns generating a steady stream of passive income. It is often touted as one of the best avenues to build wealth – a move that can pay off brilliantly during retirement.
However, with home prices steadily increasing over the past few years, direct ownership of residential real estate might be challenging.
But that doesn’t mean you can’t tap into the $30 trillion home equity market, with real estate crowdfunding companies that let you invest in residential properties without constantly worrying about mortgage or home maintenance expenses.
Arrived’s online platform allows you to invest in shares of rental homes and vacation rentals without taking on the responsibilities of property management.
With Arrived, you can browse a curated selection of homes, each vetted for their appreciation and income potential. Once you find a property you like, you can choose the number of shares you want to buy and start investing in real estate with just $100.
For accredited investors looking to expand their portfolios beyond traditional residential real estate, First National Realty Partners (FNRP) allows you to tap into the commercial real estate market.
FNRP is a private equity firm with a triple net lease (NNN) structure with some of the largest grocery chains in the U.S. such as Walmart, Whole Foods, and Kroger.
The tenants who lease FNRP’s properties are responsible for maintenance expenses, taxes and insurance, translating to potentially lower net operating expenses.
You can own a stake in institutional-quality commercial real estate, such as grocery chains and distribution centers, without having to do the leg work.
2. Trying to time the market
Market timing is deceptively tempting. Investors often convince themselves they can wait for the right time to buy or sell a stock. However, experienced investors understand that market cycles are unpredictable, so staying invested for longer is typically the best approach.
"You shouldn’t buy stocks unless you expect to hold them for a very extended period and you are prepared financially and psychologically to hold them," Buffett had said during Berkshire Hathaway’s annual meeting in 2020.
If you are investing for retirement, you need to make sure you are picking the right stocks. Also, you need to make sure you are planning correctly to meet your short-term goals without having to cash out your portfolio.
Advisor.com connects you with experienced FINRA/SEC registered financial advisors who can help you figure out how to manage your portfolio optimally.
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Once you find an advisor you like, you can set up a no-obligation consultation free of charge.
3. Hedging against volatility
Warren Buffett, who had a long-standing history of not liking gold investments, reversed his stance when he invested a $565 million stake in Barrick Gold Corp. back in 2020 – a move that hedged his portfolio against the pandemic-era market volatility.
With market volatility reaching new highs as election season nears, investing in gold can help you hedge your portfolio against sudden market fluctuations.
While gold stocks are still susceptible to stock market downturns, investing in physical gold can help you mitigate the market risk.
“No matter how wonderful a business it is, there always is a risk that you will pay a price [and] that it will take a few years for the business to catch up with the stock,” Buffett once said at a shareholder meeting.
On the other hand, with physical gold, you get what you pay for. Over the long term, gold is almost certainly going to increase in value, cushioning your retirement fund.
A gold IRA account set up with help from industry-leading firm Priority Gold lets you invest in physical gold while reaping the tax benefits of an IRA.
One of the country’s most trusted precious metals companies – with an A+ rating from the Better Business Bureau and a 5-star rating on Trust Link – Priority Gold has helped thousands of clients protect their retirement.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
