Planning for a comfortable retirement is a lifelong journey – or at least it should be. These days, a healthy adult can expect to spend almost a third of their life in retirement. Perhaps even more if they're lucky.
Most of us probably spend too much time thinking about our working careers, but too little about how we will fund our lives when we're not working any more. Retirement is not something you can plan a few months out from when it's supposed to start. So I think the earlier one starts thinking about retirement, the better.
And who better to learn from when it comes to financial planning than one of, if not the, greatest investors of all time?
On the one hand, Warren Buffett might not be the best person to take advice on retirement from, considering he has never actually retired. Buffett, who is now a spritely 92 years of age, still runs one of the largest companies in the world, Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B).
But on the other, he's managed to grow his own personal fortune to over US$100 billion. Thus, I still think he's worth listening to. After all, Buffett probably could have retired by age 30 if he so desired.
So let's talk about three Warren Buffett investing tips that can assist anyone on their retirement journey.
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3 Warren Buffett tips to help build up your retirement savings
Cash ain't king
Today people who hold cash equivalents feel comfortable. They shouldn't. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value.
Not having a primary source of income can understandably make some would-be retirees nervous about having their assets stored in anything other than the safety of cash. But this could be a mistake. Especially if you want to live on your savings for up to three decades.
As Buffett points out, cash has never been a good long-term investment. It's very rare to find a cash-based asset that will grow meaningfully in value over the rate of inflation.
That's why you should never forget to invest at least some of your money in growth assets like shares or property up to and all through retirement. It could mean the difference between shuffling off this mortal coil with plenty of wealth to spare, or seeing your savings run out before you do. And the younger you start investing in shares, property, and other solid investments, the better.
Buffett: invest prudently in high-quality assets
Buy a stock the way you would buy a house. Understand and like it such that you'd be content to own it in the absence of any market.
I love this Warren Buffett quote. Most investors do not think of shares and property as similar investments. But if you treat them as such, it will probably do you well. The best investors, Buffett included, buy shares as a long-term investment, just as we buy our homes.
Buffett himself owns some shares that he's held since the 1960s. If he tried to 'dip in and out' or treated his shares like ticker codes to be frequently traded, he would probably not be where he is today.
Instead, he knows a high-quality business when he sees it, and just lets it do its thing. Most of us would be better investors and would have a far larger retirement nest egg if we did the same.
Don't get spooked by stock market crashes
So smile when you read a headline that says 'Investors lose as market falls.' Edit it in your mind to 'Disinvestors lose as market falls – but investors gain.' Though writers often forget this truism, there is a buyer for every seller and what hurts one necessarily helps the other.
One of the worst things we can do to our future, retired selves is to become emotional when investing. That's why this Warren Buffett tip is well worth noting.
I'll let you in on a little secret – the stock market will crash again. There have been crashes for as long as the share market has been around as an institution. They are always terrifying events, but the markets have also always bounced back. However, most people who lose money investing do so in these kinds of events. After all, crashes are temporary, but selling is permanent.
But the worst thing you can do for your potential retirement is to sell the assets you've invested in for years with your hard-earned cash for a firesale price because you got scared. It's a heartbreaking tale that is all too common.
So don't set your retirement back decades by falling for this trap. There will always be market crashes. Prepare yourself for this inevitability before the next one happens, and your retirement fund will thank you.
