However, what most of them don’t do is try to explain where to begin. Square one shouldn’t be a guide to investing in an inverse bond ETF – few people even know what that is. The first step in any investor’s journey should always be turned inside – what kind of investing makes you the most comfortable? We’ve created six questions to help guide you and explain what options are available to all investors.
Table of Contents
Why Is Your Investing Style Important? – Warren Buffett Investment Strategy
Investing is a very personal journey. After all, this is essentially your life savings, and everyone’s always mentioning the disclaimer about how investing carries risks. While all investing does carry some risk, only by taking some educated risk can you hope to see returns? This is where our topic comes in.
You may not need a specific group to place yourself in, but here are some investing styles as examples to help you figure out where you might fall.
• Fully passive – First, you might want to hire a financial manager or investment advisor right from the start of your investing path to manage your portfolio.
• Moderately passive – Second, you can do some light research for mutual funds, bond funds, etc., but you’d like to let the money grow on its own without much interference.
• Lightly active – Third, do some research on the major companies; you can even read financial news, so you feel comfortable placing occasional trades during the year and managing positions.
• Fully active – Fourth, daily, you are in the financial markets, possibly even placing stock trades as a day trader, but definitely opening new positions at least once a month.
There Are No Correct Answers
Remember – this isn’t a test with multiple choice answers. There are no “right” answers to these questions. At the end of the day, if you get to a point where you are investing and you also feel at peace about how your portfolio is doing; then you’ve chosen correctly.
1. What Is Warren Buffett Doing Now?
Just to give a bit of background for our beginners, Warren Buffett is the most successful investor in our time. He made his first million by the age of 30 and managed to amass a fortune currently reported as $103 billion.
He is famous for the annual shareholder meeting as well as other reports submitted by his company, Berkshire Hathaway. Many financial firms thoroughly review these reports and scour them for information to figure out what he’s doing now; also, to know what his next moves are.
If you’re the kind of person who follows Warren Buffett’s movements closely already, you might be a more seasoned investor; the who researches the markets regularly to find good investments.
Gathering intelligence is critical to managing your own portfolio, but it takes a lot of time and energy. Let’s be clear – you don’t need to be an avid reader of the Wall Street Journal to invest your money.
If you’d prefer someone else take the reins on where money is invested, you might feel more comfortable picking a few mutual funds; setting up automatic deposits, and forgetting about it for as long as you can. This is a great way to see investment returns with lower risk.
2. The Next Market Correction Just Happened – What Do You Do?
In February of 2020, the Covid-19 pandemic caused governments worldwide to implement lockdowns and stop the spread of the virus.
Financial markets responded to the uncertainty by plummeting quickly and severely. When uncertainty exists, many people try to sell their investments thinking the markets may never recover; and this only fuels the downward movement of share prices.
When this happened, did you sell all of your investments thinking the market would never recover? If you did, you missed out on one of the biggest and fastest reversals in stock market history. Even though the S&P 500 (an index of the 500 largest companies in the US) fell about 34% by the middle of March; it closed up 15.5% by the end of 2020!
While there’s no guarantee of this being the case every time, most advisors would recommend you think long term; and avoid selling out of your positions.
There are usually market corrections of about 10% every few years on average, but these are usually temporary pullbacks. If you invest more after the markets have fallen, then you are probably a seasoned investor who feels confident accepting more risk.
If you think you might sell your investments when the market falls, your investing style might be more passive.
3. Do You Prefer to Drive or Be Driven? – Warren Buffett Investment Strategy
We’re not trying to say you’re a control freak but being in control may be something you need to have in your life; even when it comes to your investments. There are so many different platforms available now that you can have any level of control you prefer; when it comes to managing your portfolio.
If you prefer to place trades after looking through the charts and finding technical or fundamental opportunities, there are many high-level platforms; just for your investing style. Maybe you just need a website that lets you choose some funds, but if you have questions, there’s a human you can call. This is a more hands-off investing style, but it can still offer good returns.
4. Would You Buy a New Car at 0% Interest or a Cheaper Used Car at 5% Interest?
We said this wasn’t a test – and we meant it – but math is important to invest. Just to throw you a bone, the problem above is one commonly used to illustrate how interest accrues.
The new car might be a few thousand dollars more expensive, but it doesn’t accrue interest over a 5-year loan, for example. The used car might be cheaper up front, but over the same 5-year loan term, it might end up being more expensive. Having a fairly comfortable relationship with simple math is somewhat required if you think you’d like to take on a more active investing style.
5. When Was the Last Time You Made a Knee-Jerk Purchase?
Ok, sometimes those jeans were just made for you. We get it. That being said, this question is less about impulse buying than it is about being able to make a decision and live with it.
The example we gave earlier about the markets crashing in 2020 was a big test of this. Many people sold out of their investments to save the heartache of complete financial collapse, which never came.
Those people who sold probably feel some regret because the market came back in a big way; also, they might have missed out. They should have had an investment advisor who could tell them it was a mistake and talk them out of selling.
Sometimes, the decision is as easy as telling yourself you are a fully passive investor, and that’s ok. However, if you want to be more active, you need to be able to make quick decisions where you might not have all of the information available to you. Your Investing Style Is No One Else’s
Remember, you don’t have to manage your investments as your best friends do. This is a personal journey, but don’t hesitate to reach out and ask for help if you need it. Once you figure out your investing style and start using it, there’s a great peace of mind knowing your money is working for you the way you want it to even while you’re sleeping.
We hope these Warren Buffett investment strategy ideas will help you secure your financial future.