Build Your Retirement Savings With These 3 Brilliant Warren Buffett Tips

Are you looking to build a nice retirement nest egg? If you’re reading this, then you probably are. But it’s easier said than done.

Oh, the mechanical and procedural parts of the process are easy enough. Establish retirement accounts, fund them to the fullest, and invest in stocks for the long haul. It’s the more nuanced parts of the process that prove trickier. How do you know which stocks to own, and how do you stick with the plan when it’s tough to do so?

Fortunately, investing genius Warren Buffett has already answered the toughest of these questions about saving for retirement. Here’s a rundown of three of his best pieces of advice.

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Warren Buffett in a crowded room.

Start (and finish?) with index funds

When most people think about investing, stock-picking comes to mind. And hunting down individual stocks to buy certainly has its upsides.

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Don’t become so enamored with the idea of picking market-beating winners, however, that you look right past the higher-odds opportunity with an impressive track record of its own. As Buffett explains, “In my view, for most people, the best thing to do is to own the S&P 500 (SNPINDEX: ^GSPC) index fund.” In other words, don’t try to beat the market. Just be content with mirroring the S&P 500’s long-term average annual gain of around 10%.

There’s certainly plenty of evidence highlighting the unmerited risk of taking the stock-picking route. Take Standard & Poor’s regularly updated comparison of passive investing (indexing) versus actively managed (stock-picking) mutual funds available to U.S. investors. Last year, only 51% of these funds outperformed the index. And that was an inordinately good year. For the past five years, more than 86% of actively managed funds are trailing the S&P 500’s net gains. For the past ten years, more than 91% of these funds are lagging the broad market’s benchmark index.

If the pros can’t do it, it stands to reason individual amateur investors will struggle to beat the market as well. Play the odds, and don’t bother trying.

Start early

Warren Buffett doesn’t leave much up for interpretation in the tip he passed along at 1999’s annual meeting of Berkshire Hathaway shareholders. He simply told those attendees to “start early,” meaning let time do as much heavy lifting as possible by using as much of it as you can.

It’s easier said than done. Many people don’t enjoy as much income in their early working years as they do later in life. So they may not have much (if any) extra money to sock away in stocks when it matters the most.

Nevertheless, people would be wise to begin saving for retirement as soon as they can, no matter how small the amount.

The majority of your total investment gains will materialize during the last one-third of your accumulation and growth period no matter how long that period is. That’s when compounding — or earning money on your previous growth — really kicks into high gear, and you start seeing exponential gains in your portfolio’s value. Assuming you’ve invested even just a modest amount of your income up until then, you’ll start seeing portfolio growth in some years exceed what you make in wages or salary beginning around that time.

Make a point of buying the biggest dips

Last but not least, don’t be afraid of pullbacks no matter how big they may be. In fact, the bigger the pullback, the bigger the buying opportunity. As Warren Buffett puts it, “Be fearful when others are greedy and be greedy only when others are fearful.”

It’s advice that comes with an important footnote. That is, while it seems to encourage trying to time the market, that’s not what Buffett is saying. Market-timing is typically chart-based, where investors try to anticipate when stocks will either hit bottom or peak and position themselves in front of that move.

Buffett’s message is a more philosophical, bigger-picture one. When investors are convinced the global economy is permanently doomed (as they felt back in 2008 following the subprime mortgage meltdown), it often ends up being a good time to buy. Conversely, back in 2021 when many investors felt like the post-pandemic rally would never quit, that proved to be a less opportune time to put money to work in the stock market.

You likely won’t spot the exact bottom or the exact top. And if you remain invested even during the market’s tough times, you may not have much idle cash to pour into the market after a major setback.

Don’t sweat those details too much. Just heed Buffett’s advice as best you can, having faith that stocks will eventually bounce back as they always have thus far.


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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.


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