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3 Warren Buffett Investment Strategies to Help Build Your Retirement Savings

Are you looking to retire rich? That’s most investors’ ultimate goal. They want to have enough financial freedom to live how they want without worrying about money. The neat part about this goal is that it’s reachable for most people, and the keys to reaching it are relatively simple.

To be clear, just because it’s simple does not mean it’s easy. Building real investment wealth from nothing requires incredible discipline. It’s simply to say that the steps toward doing so aren’t complicated.

With that as the backdrop, billionaire Warren Buffett has offered plenty of advice on investing for retirement he has three powerful tips (quoted below) when it comes to growing your retirement savings. Not only has his investing approach been proved sound based on his own long-term results, but these three strategies are also easy and simple enough for anyone to use.

1. “Start early”

Buffett knows that time — not intelligence, experience, or information — is your biggest ally as an investor.

The underlying idea here is repeatedly achieving strong returns on your previous investment gains, as opposed to the gains you’ll achieve just by socking some dollars away each and every year. The process starts out slowly. By compounding your historical gains, though, you’ll eventually start to earn more from the sheer size of your growing portfolio than you will from yearly contributions of new money. It just takes time to reach the point where your investments are doing most of the annual heavy lifting.

A female investor saving for retirement using Warren Buffett's advice.

Image source: Getty Images.

How much time do you need? That depends on your situation. But know this: No matter how long you do or don’t invest in the stock market, about half of your total investment gains won’t materialize until roughly the final one-fourth of the time you spend growing your retirement fund.

Or here’s another way of illustrating the idea: Assuming the average annual market return of 11%, your retirement account’s stock holdings will double in value about every seven years. If you want to retire with half a million bucks, Invest roughly $30,000 into a fund or stock earning 11% a year on average and watch it grow for around 30 years. Of course, you can adjust the initial amount to account for variables like increased contributions or contributions over time or for how much time you invest it before retirement begins.

2. “If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.”

In the same time-based vein, Buffett understands that investors should be thinking in long-term timeframes. This nugget of wisdom isn’t really about tapping into the time-based power of compounding, however. This tip is about avoiding the typical trappings of a short-term mindset.

See, many people who consider themselves buy-and-hold investors actually aren’t. They’re all too often short-term traders who bail out of a stock when things look less than ideal. Conversely, too many investors only become interested in buying a stock well after a rally is underway, hoping more of the same sorts of gains are in store in the immediate future.

This approach to stock-picking can lead you into making ill-advised decisions rooted in temporary conditions. Often by the point it’s clear a headwind is blowing against a company, a stock’s already underwater. At the same time, veteran investors can attest that nothing invites major profit-taking like an oversized gain.

When you’re only thinking about where a company’s likely to be 10 or more years into the future, though, you’re forced to look past temporary matters like economic cycles, sociocultural trends, and partisan politics. From this vantage point, investors can see things much more clearly, allowing them to sidestep the costly pitfalls of trading too frequently.

3. “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”

While Buffett knows that trying to time the market is generally a bad idea, there are instances when it makes sense to make a point of betting big. Major corrections and bear markets tend to be where these instances come along.

Admittedly, it’s not easy to do. Headlines generally look dire when the market is crashing, suggesting everyone’s better served by staying far away from stocks until further notice. The trouble is, you’ll never get an all-clear notice to jump back into stocks once the selling has run its course. It won’t become clear the market’s on the mend until well after the recovery is underway and it’s too late to bother betting big.

This might help you move a little more confidently: Numbers crunched by JPMorgan Chase remind us that between 1950 and last year, the S&P 500‘s average yearly return for any 10-year stretch during that timeframe is a healthy 11.4%. The worst 10-year span was the one ending in 2010 where there was a modest 4% loss, but even that loss was quickly wiped away. Backing out to a rolling 20-year timeframe leaves us with an average annual return of 11.1% for the S&P 500, but notably, the S&P 500 has never lost ground in any 20-year span.

As for what this means to future retirees, it’s simple. If your retirement fund is now cash-heavy in response to a deteriorating market, make a point of putting that money back into the market even if it’s a bit uncomfortable to do so.

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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.

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