This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

If there's anyone qualified to define the best investment, it's Warren Buffett. He's the billionaire investor who runs Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B), the $600 billion holding company that owns Geico auto insurance, See's Candies, and many more.

In a 2017 interview, Buffett had this recommendation for investors: "I think it's the thing that makes the most sense practically all of the time. ... [to] consistently buy an S&P 500 low-cost index fund." Four years later, Buffett repeated his advice, saying, "I recommend the S&P 500 index fund and have for a long, long time to people."

Owning the S&P 500

An S&P 500 index fund owns all or most of the stocks in the benchmark S&P 500 index. The index, by its own definition, represents "leading companies in leading industries". These leading stocks must meet strict requirements for market capitalization, liquidity, and profitability.

You can buy all stocks in the index individually, but it's far easier to own an S&P 500 index fund, as Buffett recommends. There are many S&P 500 index funds available, and from known fund families like Vanguard, Charles Schwab, Fidelity, State Street's SPDRs, and BlackRock's iShares.

The low-cost index fund

Sticking with Buffett's advice, your best option is a low-cost fund -- or a fund with a low expense ratio. The expense ratio is the percentage of your investment that covers the fund's operating costs.

Vanguard S&P 500 ETF (NYSEMKT: VOO), for example, has an expense ratio of 0.03%. This means you pay $3 annually for every $10,000 you have invested. To be clear, you don't pay this amount directly -- there's no line item on your statement. Those costs are embedded in the fund's returns.

A few bucks a year may not seem like much, but fund expenses cut into your bottom line over time.

Say you want to invest $10,000 annually in an index fund for 20 years. Choose the Vanguard fund that charges 0.03% for expenses, and the projected future value of your investment is $405,506. That assumes a market-average growth rate of 7% per year after inflation.

Alternatively, you could invest the same amount in the Rydex S&P 500 Fund, which has a much higher expense ratio of 2.31%. Your projected balance after 20 years is $320,030 -- some $85,000 less. Shocking, right?

The importance of consistency

In addition to the "low-cost" tip, there's another critical element of Buffett's advice to follow: Invest consistently. He means that literally. Invest what you can each month without fail, regardless of what's happening in the market.

Consistent investing is easier and can be more profitable than timing your trades. It's easier because you make fewer decisions, and you don't have to worry about what the market will do tomorrow or next week. And it helps your gain potential by producing (on average) a lower cost basis, compared to trading only when the market's strong.

Simple investing, the Buffett way

A recurring investment in a low-fee S&P 500 index fund is a simple solution to the complex problem of wealth-building. It almost seems too easy. But history shows that consistent investing in leading US stocks produces returns averaging about 7% annually, after inflation.

At that rate of return, you'll double your money about every 10 years. That sounds pretty promising, right?

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Catherine Brock has positions in Vanguard S&P 500 ETF. Charles Schwab is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Vanguard S&P 500 ETF. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Charles Schwab. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Investing can add an extra zero (or two) to your net worth. It's not a quick process, but it can be an easy one, even if you have no investing experience. Keep reading to find out how.

The doubling rule

The doubling rule is a simple formula that estimates how long it takes to double your money on an investment. To use the formula, divide 72 by your estimated growth rate. The answer is your doubling time in years.

You can use this formula for any appreciating asset -- including your cash savings and government bonds. For those assets, you usually have a stated growth rate. Stocks, unfortunately, are less predictable. The good news is, if you plan on investing in stocks long-term, you can use the stock market's historic average performance as your estimated growth rate.

The long-term caveat is important. The stock market goes up and down from year to year, so it's mostly impossible to predict short-term growth rates accurately. But over 10 years or more, those ups and downs average out with greater consistency. Historically, the market's long-term growth has been about 7% annually, net of inflation.

Back to the doubling rule: Money invested at 7% will double about every 10 years and three months.

From $10,000 to $100,000

Apply the doubling rule to a hypothetical stock market investment of $10,000, and your projected balances over time are:

• $20,000 after 10 years and three months
• $40,000 after 20 years and six months
• $80,000 after 30 years and nine months
• $160,000 after 41 years

By that timeline, you could turn your $10,000 investment into $100,000 in about 35 years.

What stocks to buy

Your actual investment growth rate will depend on what stocks you buy. Some can double your starting investment faster, while others -- say, penny stocks -- can zero out your wealth straight away. Faster growth is obviously the best outcome, but big gains always come with the potential for big losses.

That's why it's smart to take a moderate approach. You can do that with an S&P 500 exchange-traded fund (ETF). This is a fund type that holds 500 of the largest, most established companies in the U.S. These companies in aggregate are so influential that the S&P 500 index is often used as a benchmark for the overall stock market. The index also aligns with our targeted 7% growth rate.

There are many S&P 500 ETFs out there. For the best returns, choose one with a low expense ratio. You can find some S&P 500 funds that charge 0.03% or less for expenses.

From $10,000 to $1,000,000

What if you want to turn your $10,000 into $1 million instead of $100,000? Long-term investing can support that goal, too. To make that happen, you'd invest your initial $10,000. Then you'd add $550 monthly to that investment. Stay with that plan and you should pass the $100,000 mark in about 10 years. Keep going and you're likely to reach millionaire status after 35 years.

You can also follow this plan with less than $550 monthly. Adding in a monthly investment of any size will dramatically expedite your results. The doubling rule isn't sophisticated enough to project timelines for monthly investments, but you can use a compound interest calculator like this one.

Try it out to estimate the wealth potential of your investing budget over the next 10, 20, or 30 years.

Invest long-term for more predictable results

It takes a long-term commitment to build wealth in the stock market. Plan for a timeline of at least 10 years. Kick things off by investing in a diversified portfolio of established, successful companies -- like an S&P 500 ETF. You can always branch out as you gain confidence picking investments, but you don't have to.

Given enough time, your stock market investment can grow $10,000 into $100,000 or more. Start now so you can reach those wealth milestones sooner rather than later.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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A big hurdle to launching your investment plan is figuring out where to start. You might have a few high-profile stocks in mind, like Apple or Walmart. But concentrating all your money in one or two stocks doesn't feel like a good idea.

Fortunately, a quality ETF or mutual fund can give you the best of both worlds. The right funds hold those high-profile stocks you like, plus hundreds of other positions too. You'll get the long-term growth you want, along with diversification -- all rolled up in each share.

Here are three types of fund that can anchor your investment strategy and deliver long-term returns. Over 20 years or more, you can expect these funds to grow about 7% annually on average, net of inflation.

1. S&P 500 index ETF

The S&P 500 fund is a popular choice for new investors, and for good reason. The S&P 500 index includes 500 of the largest, most successful public companies in the U.S. In terms of value, the index accounts for roughly 80% of all stocks -- which is why the index is often used as a gauge for the overall market.

S&P 500 ETFs mimic the index's performance. There are many S&P 500 funds out there, but the best choices are those with low expense ratios and minimal tracking errors.

• The expense ratio is the percentage of your investment that pays for the fund's operating costs.
• Tracking error is the difference between the fund's performance and the index's performance. There is always a slight discrepancy here. Funds have expenses and timing issues, while indexes do not. A fund's expense ratio typically accounts for most of the tracking error.

The table below shows three popular S&P 500 index funds, along with their expense ratios, size, and 10-year growth performance.

Table data source: Vanguard, SPDR, iShares

2. Total market fund

Another solid option is a total market fund, which replicates the performance of -- you guessed it -- the entire stock market.

Total market funds vary more in their holdings vs. S&P 500 funds, for a couple reasons. First, total market funds can track different indexes, such as the Wilshire 5000 or the Russell 3000. These funds can also either replicate their entire benchmark index or take a sampling approach.

Sampling means the fund holds a smaller representative group of stocks that mirrors an index's performance. The advantage is that sampling can be more cost-efficient vs. owning every stock in a large index. As with S&P 500 ETFs, low expenses are better.

Even a total market fund that samples will provide diversification across thousands of stocks, including small, medium, and large companies.

See the table below for three total market funds with low expense ratios.

Table data source: Vanguard, Schwab, Fidelity

3. Quality-screened dividend fund

If you don't like the idea of waiting decades to cash in on your investment returns, a dividend fund might be a better choice. To be clear, you'll get rich faster if you reinvest those dividends. But the quarterly payments, even if they are reinvested, can feel more tangible than unrealized gains. And tangible returns are comforting -- particularly in bear markets.

Quality-screened dividend funds invest in dividend-paying companies that meet thresholds for stability and reliability. The fund might track a quality dividend index, like the Northern Trust Quality Dividend Index. Or the fund may have its own screening methodology that looks at dividend payout ratio and dividend consistency, among other things.

The table below shows three screened dividend funds that may have roles to play in your portfolio.

Table data source: Schwab, FlexShares, Franklin Templeton

Getting rich with broad-based funds

These funds won't carry you to overnight riches, but you can double your invested capital about every 10 years. Repeat that process four times over, and you'll be well richer than when you started. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Catherine Brock has positions in Vanguard S&P 500 ETF. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Apple, Vanguard S&P 500 ETF, Vanguard Total Stock Market ETF, and Walmart Inc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Apple. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Warren Buffett has a different perspective than most on stock market declines, and it's hard not to think he's got it right. After all, Buffett is among the world's richest billionaires and most successful investors. His view on market cycles has clearly served him well.

Here's a look at what Buffett has to say about falling stock prices, and how you can safely implement his tactics.

Net buyers of stock

In a 2020 interview with CNBC, Buffett said "net buyers" of stocks benefit when the stock market goes down. By "net buyers," he means investors who do more stock buying than selling.

And guess what? You are probably a net buyer. Anyone who invests monthly in a retirement account can be a net buyer. Buy-and-hold investors are also typically net buyers.

For net buyers, lower stock prices can mean greater gains potential, assuming you keep investing when the market dips. In Buffett's view, net buyers should celebrate down markets -- in the same way you might take advantage of lower food or gas prices.

Think of it this way. If you're investing regularly and selling infrequently, it's logical to focus on stock prices as they relate to buying, not selling. And for buyers, lower stock prices are a good thing.

How Buffett celebrates lower stock prices

Buffett puts this perspective into practice, too. When the stock market turns, he often ramps up his buying activity -- taking advantage of those lower share prices before they disappear.

When the market eventually recovers, the company stands to log some nice gains on those buys.

This is exactly what happened in the first half of 2022, when the S&P 500 fell roughly 20%. Berkshire Hathaway, the conglomerate Buffett runs, invested nearly $44 billion net of sales during the dip.

How to invest in downturns safely

Investing in down markets can raise your portfolio's long-term earnings potential -- but it's not for everyone. Buffett obviously has unmatched resources plus decades of experience on his side. For the rest of us, buying in a downturn can be stressful.

For that reason, it's smart to move forward conservatively. These guidelines will help:

1. Do not invest money you'll need to spend in the next five years. Even better if you can give your investments 10 or 20 years to accumulate gains.
2. Buy companies you know. Don't use this time to speculate. Instead, lean into mature companies with a proven ability to power through down economies and other crises. You can also invest in large-cap ETFs for diversification on a budget.
3. Invest a small amount each week or month. Small, periodic investments have lower timing risk than one big investment. Timing risk is the chance a stock's price will dip dramatically just after you buy it. The slow-and-steady approach also lets you gauge your comfort level and adjust your plan accordingly before you've locked up your life savings for years.

Embrace the buyer's outlook

Even if you choose not to increase your investing activity in this tough market, you might try experimenting with a net-buyer outlook.

Instead of focusing on how much your portfolio's value has declined, look for opportunity. Watch how your favorite stocks are responding, and imagine how they might fare in a recovery. You might even track a simulated portfolio on paper.

The exercise should make this market more tolerable emotionally. And by the time the next down market rolls around, you'll have a strategy to work through it -- just like Buffett will.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Catherine Brock has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway (B shares). The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool Australia has recommended Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Warren Buffett has a knack for finding high-return equity investments. Between 1965 and 2020, the holding company Buffett runs, Berkshire Hathaway (NYSE:BRK-B), delivered a compound annual gain of 20%. That's nearly double the S&P 500's annual growth of 10.2% in the same timeframe.

Fortunately for the investment community, Buffett likes to share his methods with the masses. In early 2008, he outlined four traits he and his fellow Berkshire leader Charlie Munger use to identify investable companies:

Charlie and I look for companies that have a) a business we understand; b) favorable long-term economics; c) able and trustworthy management; and d) a sensible price tag.

Below is a closer look at those four traits and how you can apply them to your own investing.

1. A business we understand

Buffett has long expressed the importance of investing within your circle of competence. Investing in a company you understand has these advantages:

1. You have a better sense of that company's strengths and weaknesses.
2. You can make better, faster decisions and judgments when you receive new information.
3. You are more connected to the investment. Your position is more than something you hope will be profitable; it's a business you enjoy following.

2. Favorable long-term economics

Favorable long-term economics boil down to strong returns on invested capital today, plus a hefty competitive advantage to protect those returns over time. The advantage could be the industry's most efficient cost structure or a brand that's beloved by consumers around the world.

Whatever the advantage, it must be lasting. A competitive advantage that's easily copied or dismantled fails the long-term test.

This is one reason Buffett prefers stable industries over industries in flux. Change, whether in regulations, demand, or technology, can weaken competitive advantages in ways that are hard to predict.

3. Able and trustworthy management

In the absence of scandal, it's hard for individual investors to evaluate the trustworthiness of corporate leaders. But you can evaluate a leadership team's ability, often by way of the company's results and culture. Questions to research include:

• Has management been consistent and disciplined with respect to growth initiatives?
• Have they executed on stated strategic priorities?
• How has the company performed in economic downturns?
• How does the leadership team protect and enhance the company's competitive advantage?
• How has leadership addressed the company's weaknesses?
• What do the employees say about their leaders?

4. Sensible price tag

Buffett is a value investor. He invests in quality businesses when the price tag is lower than the company's intrinsic value.

As an example, as tech stock prices were falling in the first quarter of 2022, Buffett snatched up 3.7 million shares of Apple Inc (NASDAQ:AAPL). The iPhone maker was already the largest position in Berkshire Hathaway's portfolio.

Notably, Berkshire Hathaway's cash on hand had reached $144 billion before the tech sell-off. So Buffett could have easily bought more Apple shares last year, but he chose not to.

In an interview with CNBC, Buffett admitted he'd made the buy after Apple dipped -- presumably because it fell into "sensible" territory. He also said he would've bought more if the share price hadn't rebounded.

This aspect of Buffett's approach is particularly relevant now, as the S&P 500 flirts with a 14% decline on the year. The downturn has likely ushered in lower share prices for some of your favorite stocks, too.

Keep it simple

Buffett likes investing in great companies with good leaders at low prices. Notably, he can also explain what makes a company investable in one sentence. His clarity is as inspiring as his methods.

There's value in defining your own investment approach in clear, simple terms. It'll help you stay focused and make more aligned decisions. You'll need that focus if you're hoping to make like Buffett and outpace the long-term returns of the S&P 500.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Catherine Brock has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Apple and Berkshire Hathaway (B shares). The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares), and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Apple and Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

To repurpose an old television commercial: When Warren Buffett talks, people listen. Buffett is one of the world's richest billionaires and most successful investors. Much of the investment community follows his every move, looking to bring some of the Buffett magic into their own portfolios.

Buffett's moves are particularly interesting as the U.S. faces inflation plus fears of recession. Investors generally want safety in uncertain times. And Buffett, who's seen many flavors of recession, could shed light on where to find that safety.

But Buffett doesn't buy and sell stocks based on what's happening with the economy. He's an all-weather investor -- choosing stocks that can survive all economic climates. That may be why he has 10% of Berkshire Hathaway's portfolio invested in consumer staples, a sector that's known for being recession-resistant.

Consumer staples defined

Consumer staples are essential food, beverage, household, and personal products. Examples are soda, eggs, milk, toothpaste, and detergents.

Consumer staples companies include retailers and manufacturers of these products. On the retail side, you have Dollar General (NYSE: DG), Walmart (NYSE: WMT), Costco (NASDAQ: COST), and their competitors. Consumer staples manufacturers include Procter & Gamble (NYSE: PG), Coca-Cola (NYSE: KO), and Kimberly Clark (NYSE: KMB).

Why consumer staples stocks are recession-resistant

A look at your own buying habits can demonstrate why consumer staples stocks don't tank in recessions. With inflation running hot, where have you cut back to make ends meet? You're probably spending less on things like electronics and designer clothes. You may have even canceled a streaming service or two.

But you are still buying toilet paper, deodorant, and bread, even as the prices on these goods rise. On top of that, you may have shifted some shopping to discount retailers like Walmart, in lieu of your more expensive local market.

Here's what it comes down to. People keep buying their staples. Demand for these essential goods doesn't drop off when the economy goes sideways.

Buffett's consumer staples stocks

Berkshire Hathaway owns five consumer staples stocks:

1. Coca-Cola
2. Kraft Heinz (NASDAQ: KHC)
3. Kroger (NYSE: KR)
4. Mondelez International (NASDAQ: MDLZ)
5. Procter & Gamble

Where to find consumer staples stocks for your portfolio

Buffett's consumer staples portfolio is interesting, but you don't want to run out and copy it. Even Buffett himself would tell you: A better approach is to invest in what you know -- specifically, the products, brands, and retailers that are essential to you.

This is easy to figure out, too. Look at your last grocery receipt. Cross off everything that's nonessential and see what's left. Or peek into your pantry and bathroom cabinets. Note the brands you buy repeatedly. It could be Colgate or Charmin, for example. If you see mostly generic goods, then where are you buying them?

You could also think back to the products that kept selling out during the Great Lockdown of 2020. (In my community, it was toilet paper, disinfectants, and chicken.) People stockpile the stuff they can't live without. And many of these staples are made or sold by public companies.

Spend a few minutes on this exercise, and it could reveal six or more recession-resistant stocks to consider for your own portfolio.

Recession defense, the Buffett way

Many investors use consumer staples stocks as a defensive strategy against recession. To follow Buffett's approach, though, you'd invest in defensive stocks you're willing to hold for decades. That's different from owning shares of Coke or Walmart temporarily because financial pundits are predicting recession.

In other words, play defense consistently. Manage to a risk level you can handle in all investing climates. Buffett has 10% exposure to consumer staples, for example, but you might prefer 5% or 15%. Whatever your number is, stick with it. That way, you won't be scrambling to adjust to every market shift. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Catherine Brock has positions in Coca-Cola, Dollar General, and Procter & Gamble. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway (B shares), Costco Wholesale, and Walmart Inc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Kraft Heinz and has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), long January 2024 $47.50 calls on Coca-Cola, short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool Australia has recommended Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

You could say Warren Buffett knows a thing or two about investing. He's been buying equities for decades as Chairman and CEO of Berkshire Hathaway -- a conglomerate worth more than $610 billion. Buffett's personal wealth totals about $100 billion.

Fortunately for the investment community at large, Buffett isn't shy about sharing his investing expertise. While many believe he has a unique gift for seeing business value, some aspects of his strategy are easy enough for novice investors to copy. Here are four of those straightforward investing strategies you can try today.

1. Invest in the S&P 500

In a 2017 interview, Buffett advised retirement savers to invest consistently in a low-cost S&P 500 index fund. In his words, "I think it's the thing that makes the most sense practically all of the time."

S&P 500 index funds invest in S&P 500 stocks. These are the largest and most successful publicly traded companies in the U.S. As a group, they're not going to make you a millionaire overnight -- but they have produced solid growth over time. Historically, the S&P 500 has grown about 7% annually, net of inflation.

S&P 500 index funds are readily available from any brokerage. Some brokerages even support fractional buys on these funds. This is a good option when you're on a tight budget.

Note that Buffett specifically recommends low-cost funds. These are funds with low expense ratios, which represents how much of your invested capital goes toward fund expenses.

An expense ratio of 0.03%, for example, equates to $3 in fees annually for every $10,000 you've invested. The lower the expense ratio, the more of the underlying investment returns flow through to your bottom line.

2. Focus on the long term

You can invest for profits quickly or over time. Buffett follows the latter strategy. He's said his preferred holding period is forever.

Some stocks are better suited than others for long holding periods. Buffett likes established businesses with strong track records through various economic climates -- companies with staying power. Blue-chip companies and S&P 500 stocks generally fit the bill. 

On the other hand, trendy stocks, start-ups, and radical innovators are typically outside Buffett's wheelhouse. There are opportunities in these categories, but profit-making can be more dependent on trading vs. holding.

3. Look past market turbulence

Buffett is committed to his long-term approach and doesn't let turbulent markets shake his resolve. When asked for advice on managing through market volatility, Buffett said, "Don't watch the market too closely." 

The beauty of long-term investing is that it requires you to do nothing when share prices are falling across the board. Remember that you've invested in companies with staying power. As long as those companies haven't fundamentally changed, waiting is your best move. Keeping your portfolio intact positions you for gains once the down market reverses.

4. Go against the grain

Buffett has famously said his investing goal was to "be fearful when others are greedy and to be greedy only when others are fearful." In other words, be cautious when the market's hot, and look for opportunity when the market's weak.

For Buffett, opportunity often means buying good stocks at lower prices. He did exactly that in the first quarter of 2022 during the big tech sell-off. While other investors were reducing their technology exposure, Buffett picked up 3.7 million shares of Apple, one of his favorite stocks. 

Investing like Buffett

Buffett prefers big companies and long, uninterrupted holding periods. He also likes to operate against prevailing market sentiment. While these methods require perseverance, they're straightforward enough for any investor to copy.

Once you implement Buffett's simplest tactics, you can then wait for your gains to emerge over time. In a few decades, you'll remember this day as the moment making money in the stock market got a lot easier. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Catherine Brock has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Apple and Berkshire Hathaway (B shares). The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares), and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Apple and Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

1. You won't have to time your return to the market

2. Recessions and bear markets aren't the same thing

3. You will avoid realizing losses

4. You will benefit from recovery gains

^DJI data by YCharts

• The index did not fall straight down nor rise straight up.
• The most dramatic gains in the recovery happened just after the Dow hit its cyclical low point in the second half of March.
• The index was back into positive territory by the end of July.

^DJI data by YCharts

5. You have an emergency fund

Hold on tight

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post 5 reasons to hold onto your investments during a recession appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• WiseTech shares are surging again, is it too late to buy now?
• 2 ASX healthcare shares I think can beat the market
• Where I'd invest $3,000 in ASX growth shares now
• RBA's 'worst nightmare': What exactly is stagflation?
• Brokers name 2 skyrocketing ASX energy shares to buy today

Catherine Brock has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

1. ETFs aren't giving you what you need

2. You have time to manage a stock portfolio

3. You are comfortable with volatility

4. You like to learn

Fall forward

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post 4 signs you're ready to graduate from ETFs to picking stocks appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• WiseTech shares are surging again, is it too late to buy now?
• 2 ASX healthcare shares I think can beat the market
• Where I'd invest $3,000 in ASX growth shares now
• RBA's 'worst nightmare': What exactly is stagflation?
• Brokers name 2 skyrocketing ASX energy shares to buy today

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Warren Buffett, famous investor and fourth-richest person in the world, has some investing advice for you. And it doesn't involve ratios, valuations, or any nonsensical acronyms that have something to do with cash flow. Nope, Buffett's recommendation is far more straightforward: He says you should be buying index funds.

Beating the market versus moving with the market

An index fund is a mutual fund or exchange-traded fund (ETF) that mimics the behavior of an underlying index. When you invest in index funds, your goal is to keep pace with the market. That's very different from the approach taken by stock pickers and active mutual fund managers -- people like Buffett himself. Stock pickers don't want to ride along with the market; they want to beat the market.

The trouble is, few people can consistently pull that off. Buffett, as CEO of Berkshire Hathaway, had an amazing run of outperforming the S&P 500, but even he's been less successful recently. And according to S&P Indices Versus Active (SPIVA), 80.6% of actively managed large-cap mutual funds underperformed the S&P 500 over the past five years. In other words, beating the market is hard for anyone -- let alone the part-time investor.

As an investor, you have to choose your battles. You can try to beat the market by picking stocks or by investing in actively managed funds. Unfortunately, it's likely you or your fund manager will underperform. Alternatively, you can opt for moving with the market via index funds. Considering that the S&P 500 has shown an average annual growth of 7% after inflation since its inception, riding those coattails isn't a bad deal at all.

Timing is important

As the first quarter of 2020 has reminded us, the long-term trends of the S&P 500 can be quite different from what's happening in the market right now. The average growth may be 7%, but in any given year, the index might be up 30%, down 30%, or somewhere in between.

When you invest in an S&P 500 index fund, you're signing up for the good and the bad. That's why it's important to invest only in funds you don't need for seven years or more. That way, you can ride out the inevitable downturns calmly, without having to liquidate at a low point.

Why fund performance won't exactly match the index

Take a look at a handful of S&P 500 index funds and you'll quickly see that they don't track exactly with their index. There are several reasons for this. Some funds achieve index-level performance by replicating the index exactly; others use a representative sample that behaves like the index, often to keep costs low. Changes in the composition of the index also have to be replicated by the fund after the fact, which can affect performance. But the biggest drag on the fund's performance relative to the index is the fund's expense ratio.

Expense ratio is the fund's operating costs as a percentage of total assets. Since fund expenses do reduce shareholder returns, you should make a practice of choosing index funds with very low expense ratios. That essentially allows the fund to produce returns that are more in line with the underlying index. 

You can diversify with multiple funds

Buffett is a proponent of S&P 500 index funds in particular, because the portfolios are naturally diversified across 500 large, reputable companies. But holding only a single, large-cap equity fund may not match your risk tolerance or timeline. That's a problem easily solved, however. You can tailor the risk level in your portfolio by holding -- you guessed it -- other index funds. For example, you could add a bond index fund to reduce your reliance on equities or an international equity index fund to reduce your reliance on the one economy.

Rebalance to manage risk

If you do hold multiple index funds, pay attention to how the composition of your portfolio changes over time. Generally speaking, your equity funds will grow in value, while your bond funds will throw off cash, but remain fairly stable. Since equities are riskier than bonds, letting that trend go unchecked will add risk to your portfolio.

The solution is to rebalance your holdings every year. Rebalancing is the process of adjusting your portfolio composition back to where you want it to be. You'd do this by selling off some of the funds that are over-weighted and using the proceeds to buy funds that are underweighted. In practice, this usually means reducing your equity positions and increasing your bond positions.

Index funds are simple and reliable

You don't have to spend your days poring over financial ratios and earnings reports to make money in the stock market. Index fund investing is an alternative that's simple, accessible, and -- importantly -- reliable over the long term. In Buffett's own words, "I think it's the thing that makes the most sense practically all of the time, and that is to consistently buy an S&P 500 low-cost index fund."

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post This Is How Warren Buffett Says to Invest appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• WiseTech shares are surging again, is it too late to buy now?
• 2 ASX healthcare shares I think can beat the market
• Where I'd invest $3,000 in ASX growth shares now
• RBA's 'worst nightmare': What exactly is stagflation?
• Brokers name 2 skyrocketing ASX energy shares to buy today

Catherine Brock has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.