COVID-19 has caused disruption and uncertainty across the globe, and not only in terms of public health. If you’ve read financial headlines lately—or dared to take a peek at your 401(k)—you’ve seen that the stock market took a massive nosedive in March, with major indexes like the Dow Jones and S&P 500 posting double-digit losses. The market has since rallied somewhat, but if you’re spooked about investing right now, you’re not alone. Fortunately, Warren Buffett has some sage advice to get you and your portfolio through these turbulent times.
In his annual interview with CNBC back in February and in the more recent annual meeting for his company Berkshire Hathaway (held virtually for the first time ever), the Oracle of Omaha dispensed sound investing wisdom that can help anyone make smart decisions with their money. Here are some of the highlights.
Don’t Stress About News Headlines
Although a global pandemic is serious business, it’s important not to let day-to-day news weigh too heavily on your investing practices, Buffett says. That’s because the market is unpredictable, and it doesn’t always react to current events in obvious or easily traceable ways.
“You certainly can’t predict the market by reading the daily newspaper,” he told CNBC earlier this year. “Now coronavirus is front and center. Something else will be front and center six months from now.”
When investing in stocks, don’t think about it just as purchasing the stock itself, but rather as buying into a business that you expect to grow over the next decade or more. Taking the long view can help you worry less about day-to-day fluctuations, and it’s a much better path toward building up wealth.
“People would be better off if they said ‘I bought a business today,’ not ‘I bought a stock today’ because that gives a different perspective on it,” Buffett said.
Focus on Value
With such big swings happening right now, it can be tempting to try to time the market and make a quick buck. But in the long run (and even in the short run), that strategy will come back to bite you. That’s because even the most experienced analysts have a hard time making accurate predictions.
Instead, Buffett urges people to focus less on share price and more on a company’s overall value. Taking a peek at a company’s balance sheet, considering its past growth, and assessing its future growth potential will help you get a more accurate picture of whether or not a stock is worth buying.
“I don’t think anybody knows what the market’s going to do,” Buffett told CNBC. “I think you do know whether you’re making an intelligent purchase at a given price.”
Choose Stocks Over Bonds
Those big swings in the market might have you thinking that choosing more conservative investment options, like bonds, might be a better move than dumping your money into stocks. Not necessarily, according to Buffett. That’s because stocks have way more earnings growth potential, which means you’re likely to get better returns.
“Stocks are way better than 30-year bonds,” he told CNBC. “That’s clear.”
Consider an Index Fund
Don’t go nuts trying to pick the right stocks or manage them day-to-day. At the Berkshire Hathaway annual meeting, Buffett advised parking your money in an index fund, which aims to mirror the performance of one of the financial market indices. You can snag good returns by betting that the overall market will improve in the long term, and index funds are a great way to do just that.
“I think people are much better off buying a cross-section of America and just forgetting about it,” he said.
Not sure which fund to pick? Buffett said that buying shares of an S&P 500 Index fund is the best way to go for most people.
Don’t Use Borrowed Money to Invest
Although Buffett has a lot of confidence in investing as a strategy to build wealth, buying stocks with borrowed money is risky—especially with all the volatility due to COVID-19.
“When something like the current pandemic happens, it’s hard to factor that in,” he said at the annual meeting. “That’s why you never want to use borrowed money, at least in my view, into investments.”
Skip the Cryptocurrencies
Buffett’s not shy about this one: “Cryptocurrencies basically have no value and they don’t produce anything,” he told CNBC. “What you hope is that somebody else comes along and pays you more money for it later on.”
In his opinion, you’re much better off investing in stocks, because that way you’re putting your money into real companies that produce goods and services, (hopefully) turn a profit, and create value for shareholders.
Bet on America
This has been Buffett’s refrain for years, and not even a pandemic has shaken his confidence. Buying shares of American companies and holding onto them for years is still a good way to build a nest egg—through good times and bad.
“Overall I think America will do very well,” he said in his CNBC interview. “It has since 1776.”