Warren Buffett is pretty much a stock-picking genius and has managed to amass a staggering amount of wealth in his lifetime. As such, he’s a pretty good role model when it comes to investing.
But as much as I have a ton of respect for Buffett, I can’t invest my money the same way he does. Here’s why.
1. I’m not as savvy as Buffett
As someone who writes about investing and has been buying stocks for years, I know a thing or two about vetting a company and assembling a diverse portfolio. But do I have the skill set Buffett has to choose stocks that will consistently outperform the broad market? Not necessarily.
That’s why I can’t solely load up on stocks in my portfolio. Instead, I feel compelled to own some broad market index funds.
Index funds have the goal of matching the performance of various benchmarks. S&P 500 index funds, for example, will seek to deliver similar returns to the S&P 500 itself.
While Buffett is clearly a proponent of hand-picking stocks, he’s also made a point of saying that index funds may be a more suitable choice for everyday investors with limited stock-picking knowledge. And while I consider myself a notch or two above that category, I do think putting some of my assets into broad market index funds is a good bet.
2. I’m probably more risk-averse
Warren Buffett has billions of dollars to his name. I have — well, let’s just say a lot less money than that. For this reason, I need to be a bit more cautious when choosing assets for my portfolio.
If I were to take a risk on a stock and lose $10,000, that would be a pretty big blow for me. For Buffett, it would be a non-event. Even though I don’t consider myself a particularly conservative investor, I’m probably more conservative than Buffett.
3. I need to be cautious about retirement
Warren Buffett reached billionaire status well ahead of retirement age. So in his later years, preserving wealth was probably not a big concern for him, since he had plenty of it.
I, meanwhile, have been saving diligently for retirement and loading up on stocks to grow my money. But I also need to plan to scale back to more conservative investments as that milestone nears. That could mean owning fewer stocks and more bonds, which are more stable but don’t tend to deliver the same returns stocks are known to offer.
A world of respect, but a different strategy
Let’s be clear — I have tremendous respect for Warren Buffett and would be thrilled to wind up with a fraction of the wealth that he’s managed to accumulate. But I also have to be realistic about the fact that my financial circumstances are very different from his.
As such, I can try to be like Buffett in some regards — for example, holding my stocks for the long haul, which he strongly advocates. But ultimately, I can’t follow his exact lead, and that’s OK.
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