WARREN BUFFETT – HOW TO INVEST IN THE STOCK MARKET ?!?

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Buffett recently gave an interview discussing how if he would have invested the first money he had $114.75 in 1942 in the S&P 500 and reinvested the dividends, he would now have $400,000. That is a nice way to sell the stock market to people but I really disagree with Buffett and on what he is selling. Here are my points:

Nobody has a 75 year investment horizon

Buffett’s goal in life was just to accumulate capital and be the best investor in the world, he achieved it but I am sure that isn’t the goal of 99.9% of us. We want our money to work for us so that we can spend the extra money and have a better life or retirement thanks to our investments, 70 years is a bit too much. Therefore, we have to see what are the best risk reward investments for a 20 or even shorter investment horizon. But let’s see how Buffett’s advice to invest in the S&P 500, something he never did, holds over shorter periods of time?

2) Shorter term investing – shorter than 75 years

Let’s look at the distribution of 10 years returns over the last 139 years of S&P 500 available data.

4 COMMENTS

  1. Stocks produce the good returns over longer periods of time, but the best returns when you buy at low valuations. Investing in index funds will give you a historically poor risk/return opportunity at this point in time.

  2. If you're 20 years old and putting money in a retirement account the advice Buffett is giving is probably decent advice. If you're 40 and investing so that you don't have to work as hard its not so great.

  3. Very good point. Although do note that we probably are going to see a negative return over the next 10 years if you began investing now because the market is overvalued. In the next few years we can expect a crash that will wipe out any returns you have in the next couple of years. We may even be negative several years after until the market recovers
    This can take quite a long time as we have seen in the last recession. Invest once the market has fallen significantly can reduce the chance of negative returns in 10 years

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