1. “Someone's sitting in the shade today because someone planted a tree a long time ago”
The lesson here is to be a forward thinker when it comes to personal finance, whether you're talking about investing, saving, or spending.
When you're deciding whether to put some more money aside for emergencies, think of a financial emergency actually happening and how much easier your life will be if you have enough money set aside.
Similarly, few people get rich quick by investing, and most people who try end up going broke.
The most certain path to wealth (and the one Buffett took) is to build your portfolio one step at a time and keep your focus on the long run.
2. “Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years”
In addition to this, one of my all-time favorite Warren Buffett quotes is “our favorite holding period is forever,” which is also one of the most misunderstood things he says.
The point isn't that Buffett only invests in stocks he's going to buy and forget about — after all, Buffett's company Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) sells stocks regularly, and for a variety of reasons.
Rather, what Buffett is saying is to invest in stable, established businesses that have durable competitive advantages.
That is, approach your investments with the long-term in mind, but keep an eye on them to make sure your original reasons for buying still apply.
3. “Price is what you pay; value is what you get”
When you're buying something, the price you pay and the value you receive are often two very different things.
Whether you pay $499 or $199 you’re still getting the same exact set of pots and pans. Be sure you consider value and price separately when making investing decisions.
This advice works in all aspects of life. Do you want to treat your family to a dinner out? Look for a coupon first.
For lunch Bring leftovers to work with you instead of eating out. These things are not hard and just make good financial sense.
4. “Cash … is to a business as oxygen is to an individual: never thought about when it is present, the only thing in mind when it is absent”
One of the reasons Berkshire Hathaway not only survives recessions and crashes but tends to come out of them even better than it went in, is that Warren Buffett understands the value of keeping an “emergency fund.”
In fact, when the market was crashing in 2008, Berkshire had enough cash on hand to make several lucrative investments, such as its purchase of Goldman Sachs warrants.
Granted, Berkshire Hathaway's rainy-day fund is probably a bit bigger than yours; Buffett insists on keeping a minimum of $20 billion in cash at all times, and the current total is around $85 billion.
However, the same applies to your own financial health.
If you have a decent stockpile of cash on the sidelines, you'll be much better equipped to deal with whatever financial challenges and opportunities life throws at you.
5. “Risk comes from not knowing what you're doing”
In Buffett's mind, one of the best investments you can make is in yourself and the knowledge you have.
This is why Buffett spends hours of every day reading and has done so for most of his life.
The better educated you are on a topic, whether it's investing or anything else, the better equipped you'll be to make wise decisions and avoid unnecessary risks.
As Buffett's partner Charlie Munger has advised: “Go to bed smarter than when you woke up.”
6. Most people should avoid individual stocks
This may seem like strange advice coming from Warren Buffett since he's widely regarded as one of the best stock-pickers of all time.
However, Buffett has said on several occasions that the best investment for most people is a basic, low-cost S&P 500 index fund, like the one he is using in a bet to outperform a basket of hedge funds.
The idea is that investing in the S&P 500 is simply a bet on American business as a whole, which is almost certain to be a winner over time.
To be clear, Buffett isn't against buying individual stocks if you have the time, knowledge, and desire to do it right.
He's said that if you have six to eight hours per week to dedicate to investing, individual stocks can be a smart idea. If not, you should probably stick with low-cost index funds.
7. Remember to give back
Warren Buffett is a co-founder of and participant in The Giving Pledge, which encourages billionaires to give their fortunes away.
Buffett plans to give virtually all of his money to charity, and since he signed the pledge, he has given away billions of dollars' worth of his Berkshire shares to benefit various charitable organizations.
Buffett once said, “If you're in the luckiest one percent of humanity, you owe it to the rest of humanity to think about the other 99 percent.” And even if you're not a member of the 1%, it's still important to find ways to give back.
8. “You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ.”
Perhaps one of the greatest misconceptions about investing is that only sophisticated people can successfully pick stocks.
9. “Decision-making abilities fade as cash flow increases.”
Suppose you only have $5 in your pocket until the end of the week, it is likely that you will make a good decision with it because it is all you have.
On the other hand, if you have $100 for the week, your decisions regarding a $5 purchase are far less critical since you have another $95.
Therefore, people tend not to treat those decisions with the same respect they would if it was their last $5.
Parkinson’s Law states that expenses rise to meet income.
It is the reason that many people wonder why their last raise didn’t make paying the bills any easier.
The way to defeat Parkinson’s Law is to treat each dollar as if it is the last – to make the best possible decision for each and every dollar.
10. “If you don't find ways to make money while you sleep you will work until you die”
Those are some strong words from the greatest investor ever and one of the richest men in the world.
Passive income, also known as residual income is money that you don’t have to physically work for. You set it up and do the work ONCE and then enjoy the cash that comes in steadily and consistently FOREVER, or until you sell the asset.
Whether you decide to go to work, spend the day with your family, sit on a tropical beach with some fruity blended drink or just stay in bed and watch 17 hours of Netflix.
Passive income gives you the freedom to do what you want and when you want to do it. Money shows up in the mail or directly deposited into your account without having to go to a job. Passive income should be your ultimate goal.
Closing Thoughts on Warren Buffett’s Investment Tips and Advice
So while investing in stocks generally isn’t the best move for most beginners, thankfully we now have all kinds of simpler options of how you can get started investing even without much money with tools like Acorns, Betterment, or Fundrise.