As I approach 30, I’m considering investing more seriously for my retirement. I have a stock portfolio of companies I believe in but haven’t invested as regularly as I should. To change that, I have set a goal of having a £1 million portfolio by the time I hit retirement age. So, based on the average market growth of around 7%, I need to invest £470 a month in shares over the next 38 years. To ensure that my money grows at that rate, I will follow three of Warren Buffett’s investing methods.
Timing the market is a fool’s errand
The old adage of “time in the market beats timing the market” is one of Warren Buffett’s key tenets. According to Buffett, trying to time the market is the biggest mistake of amateur investors.
That’s why investing a regular amount every month will be the backbone of my strategy. I want consistent, average annual growth in companies that I don’t need to think about too much.
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Nearly 50% of Berkshire Hathaway’s stock portfolio is in Apple (41.76%) and Coca-Cola (7.57%). These two companies have provided incredibly consistent growth for over a decade and a century, respectively.
Those are the types of companies I want in my portfolio.
Sell? What’s sell?
Time in the market versus timing the market is true for buying and selling. That’s why I don’t intend to sell any of the stocks in my portfolio. This follows Warren Buffett’s idea that his favourite amount of time for holding a stock is “forever.”
That doesn’t mean I wouldn’t ever sell the stocks I plan to buy. Nobody can predict the future. If something drastic happened to a company I had shares of, I may sell.
What it means is that for every stock I buy, I am buying with the intention of holding it forever.
I don’t know what I don’t know
If I’m going to buy shares with the intention of holding them forever, I need to educate myself about the companies I’m adding to my portfolio.
Warren Buffett won’t invest in a company if he doesn’t understand it. He refers to this as only investing within his “circle of competence”.
That’s why I’m only going to invest in companies I believe in because I understand how they operate. Therefore, I will be arming myself with the knowledge I need to make educated decisions before adding a company to my portfolio.
If I don’t understand a company fully, I don’t invest, no matter how good an opportunity looks. If I can educate myself about the company and then invest, great.
However, if, after doing my research, I’m still not 100% confident in my understanding, then it’s best to let it pass by.
If I follow these three principles while investing £470 a month, I’ll hopefully have a £1 million portfolio in time for retirement.
