Buffets Rules for Retirement Investing

Capture40 years ago investment guru Warren Buffett wrote a letter to Katharine Graham  the legendary head of the Washington Post newspaper outlining his key strategies for managing retirement investments. This letter which is available here (http://bit.ly/19R4nWk) is remarkably still very relevant today for those looking at their retirement savings. Some of the most interesting point are as follows:

  • Think of retirement need in terms of actual goods, ie 1000 hamburgers per month. Because the price of hamburgers will almost definitely go up with inflation so the amount of capital that is required to fund retirement a long way in the future is unknown so you need to be sure that you save and grow your investments enough.
  • Buy businesses not stocks: this is a Buffet golden rule as he looks purely at the share you are buying as a slice of a business and not as a speculative investment so you need to be happy with the business and have good information about it.
  • Fixed income investments are not enough for building a retirement portfolio as inflation is a problem that will eat into the value of investors capital over time. Also if you are too conservative early on in your investing career you may not grow your fund enough to live off a conservatively placed asset allocation later in life.
  • Get tough and handle volatility: Buffett acknowledges that markets “may bounce widely and irrationally” but that we should remember that the investment timeframe for retirement income is perhaps 10 or 20 years and that investors should not get too easily distracted by short term fluctuations.