Millennials seem to distrust the stock market more than any generation in history.
It makes sense that young investors would be hesitant about investing in the stock market after watching the financial world almost collapse around them and watching their parents’ generation lose homes, jobs and significant portions of their wealth.
Indeed, young investors are incredibly risk averse – or so they think.
By focusing on the short term risk of losing money in the stock market, millennials are exposing themselves to a significant long-term risk. By avoiding growth investments in favor of cash savings, many young investors are setting themselves up for failure.
An entire generation of Americans will fall short of their retirement savings needs if they don’t adjust their risk tolerance and investment mix.
But it’s not too late. Here are three tips for young investors from Warren Buffett of Berkshire Hathaway (NYSE: BRK.B), arguably the most successful investor in history.
Tip for Young Investors #1: “Be fearful when others are greedy and greedy when others are fearful.”
Disciplined investing often involves suppressing basic human nature. When the markets are rising it seems everyone is making money in the market or has a hot stock tip to share.
Buffett argues that investors should “be fearful when others are greedy,” meaning that they should be skeptical of the frenzy when markets shoot higher and higher.
The financial crisis and stock market crash of 2008-2009 is a great example of this advice paying off.
What if you had invested $1,000 at the height of the market in October 2007 when the market was “greedy?” Your investment would’ve fallen to $429.25 in March 2009, the height of investors being “fearful.”
On the flip side, if you had invested that same $1,000 when the markets hit their March 2009 lows, your investment would have risen to $2,319.47 in just three years and would be worth almost $2,950 today.
Tip for Young Investors #2: “The stock market is a no-called-strike game. You don’t have to swing at everything – you can wait for your pitch.”
In 2008 when investors were hitting the panic button and selling stocks at pennies on the dollar Warren Buffett remained cool, calm and collected. From 2008 to 2011, Warren Buffett made investments in the same kinds of companies he already liked to own, but at significantly lower prices.
A great example of this is his $5 billion investment in Goldman Sachs (NYSE: GS), which came shortly after the collapse of Lehman Brothers.
Buffett waited for the perfect pitch, a major investment in a solid company at the height of the financial crisis.
His $5 billion investment has already paid off handsomely, with profits exceeding $3 billion on his $5 billion investment.
Tip for Young Investors #3: “Someone is sitting in the shade now because someone planted a tree a long time ago.”
Warren Buffett is famous for never investing in tech companies, despite a close friendship with tech-titan Bill Gates. Buffett invests in companies like Coca-Cola (NYSE: KO), ExxonMobil (NYSE: XOM) and Wells Fargo (NYSE: WFC).
He likes these stocks because they are stable, pay high dividends and because those dividends are rising.
If you start young you don’t need risky investments in high-flying stocks. Make regular contributions to an investment account in which you own shares of high quality, low risk stocks. Reinvest the dividends and let compound interest work its magic to grow your portfolio the slow-and-steady way.
Why Warren Buffett keeps his money outside the U.S.
There’s never been a more forthright or upstanding investor than Warren Buffett, but even he hates taxes. That’s why the Berkshire Hathaway CEO keeps his personal fortune (over $600 million) in an offshore account… on an island paradise that offers the best retirement benefits. Here, the government doesn’t tax dividends or even capital gains. The result is, investors with money here earn more on average than investing in the U.S. alone. Best of all, this billionaire’s secret retirement haven is now OPEN to individual investors. You can join Warren Buffett today… right through your brokerage account – without ever leaving home. Click here to find out how.