1. New to investing? Tap into the S&P 500

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Buffett talked up his favorite investment during his Berkshire Hathaway company's recent annual meeting.

“I recommend the S&P 500 index fund, and have for a long, long time to people,” Buffett said, adding that, upon his death, 90% of the money he leaves his wife will go into an S&P 500 fund.

S&P 500 index funds are mutual funds or ETFs that track 500 of the largest companies in the U.S.

"I like Berkshire, but I think that a person who doesn’t know anything about stocks at all, and doesn’t have any special feelings about Berkshire, I think they ought to buy the S&P 500 index," Buffett told shareholders at the meeting, held in Los Angeles in early May.

Be like Buffett: Getting in on the S&P 500 action through an ETF or mutual fund doesn’t require a store of cash. You can start building a diversified merely by investing your "spare change."

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2. Be practical — even when the market's losing its mind

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Even with the stock market humming along and making millionaires out of people who clicked on the right Reddit thread, Buffett has advised his investors to take a long-term, practical approach to the market rather than making "30 or 40 trades a day to profit from what looks like a very easy game."

During the meeting, Buffett displayed a pair of slides that showed the 20 largest companies in the world by stock value today and in 1989. None of the companies on the list from ’89 was on the 2021 version. The lesson: picking winners isn’t easy.

"If you just had a diversified group of equities, U.S. equities, that would be my preference, but to hold over a 30-year period," he said.

Be like Buffett: Investors who do their homework and make informed choices have been rewarded this year as the stock market has marched to new record highs, even amid the chaos of COVID-19.

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3. Don’t count on pensions

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One of the more alarming trends Buffett dove into during the Berkshire meeting was the increasingly shaky status of many state pension funds, an issue he said he'd had his eye on since 2013.

“The pension situation is terrible in a great many states,” Buffett said. “It has not gotten better. It has not gotten better at all, obviously.”

The pandemic has been murder on states’ finances and will only exacerbate a pension problem that currently has no long-term solution. Before the pandemic started, state pension plans were already $1 trillion short of the funding they’d need to meet their future obligations to retirees, according to the Pew Charitable Trusts.

Be like Buffett: If you have a traditional pension plan, you may not be able to count on it to provide for you in retirement. You’ll want to get a headstart on making up for whatever shortfalls might await you.

One solid long-term investment play is farmland. The average rate of return on farmland over the past 47 years has been better than 10%. That makes it a better performer than most stocks or other forms of real estate. With worldwide demand for food rising, farmland will only grow more attractive as an asset.

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4. Investors should stay wary of some investments

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Buffett has gotten out of airline stocks because of COVID-19.

The coronavirus crisis has ravaged entire industries. Airlines survived with help from government support. Take that support away, and you’d be looking at an entirely new kind of airplane disaster. The industry has months to go before anything resembling normal business — and normal profit margins — return.

“I still wouldn’t want to buy the airline business,” Buffett told his Berkshire shareholders.

One of the carriers Berkshire dumped from its portfolio was Delta Air Lines, whose shares lost more than half their value between March 1 and May 15 last year. That stock has since recovered, along with those of other major U.S. airlines, but Buffett has little confidence in the sector’s economic fundamentals.

Be like Buffett: Choosing the right stock out of thousands of potential options can make for a confusing entrance into the market. But several investing apps are available that can make the process a lot easier.

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5. Stick to your long-term plan

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Buffett says stay on target with your financial goals.

Buffett remains confident that the U.S. economy will bounce back from the COVID crisis, but he told his shareholders that the future is far from certain.

“You can bet on America, but you have to be careful about how you bet,” he said, later reiterating that the world can change in “very, very dramatic ways."

Buffett has never wavered from his belief that holding onto stocks long term is the right investment play for a stable financial future. During the Berkshire meeting, he was even reminded that he once said holding onto a stock forever “was too short a time period.”

Be like Buffett: A financial planning service can help you sit tight and stay focused with your investments, and using one is much more affordable and convenient than you might think.

Today, you can connect with a certified financial planner online and inexpensively, to keep you on track toward your long-term goals.

6. Take full advantage of low interest rates

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With interest rates falling, Buffett says it's a great time to borrow.

Buffett sees fantastic opportunities for borrowers in 2021, thanks to the Federal Reserve’s commitment to keeping its key interest rate near zero.

“It’s a fascinating time,” Buffett told investors, adding that the low-rate environment "is enormously pleasant."

"The economy went off a cliff in March [2020],” Buffett said. “It was resurrected in an extraordinarily effective way by Federal Reserve actions."

Be like Buffett: If you're a homebuyer or homeowner and have a solid credit score, you can capitalize on today's dirt-cheap interest rates by getting an unbelievable deal on your mortgage.

Mortgage rates have inched up this year, but they’re still low enough that you could save hundreds of dollars a month by refinancing your mortgage. Compare the best offers from several lenders to be sure you’re making an informed decision.

7. Credit card balances should be avoided

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Buffett says if you're carrying credit card debt, get rid of it

The pandemic, with its business closures and layoffs, has forced millions of Americans to rely on their credit cards to cover basic financial needs. It’s a fine survival strategy, but the resulting balances and high interest can make for long-term financial stress.

During Berkshire's 2020 shareholders meeting, which was held online, he recalled the advice he gave a friend who came into a windfall and was wondering about the wisest way to spend it. She told Buffett she also had credit card debt — at 18% interest.

"If I owed any money at 18%, the first thing I’d do with any money I had would be to pay it off," Buffett remembered telling her. "You can’t go through life borrowing money at those rates and be better off."

Be like Buffett: If your credit card debt is affecting your finances, experts say a good first step toward managing it is to roll it into a debt consolidation loan.

Not only will you simplify your life by reducing the number of bills you’ll be paying, but you’ll also slash your interest costs and pay off your debt faster. Instead of 18%, you might find yourself paying as little as 5.95% APR.

8. Always be ready for the worst

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Buffett said a 'megacatastrophe' was coming.

They don't call Buffett an oracle for nothing. In 2019, he warned that the world was due for a "megacatastrophe" that would dwarf the chaos created by hurricanes Katrina and Michael. When the coronavirus first hit the U.S., the multibillionaire said during an interview, "I've always felt a pandemic would happen sometime."

You’d expect that kind of foresight from someone so heavily invested in the insurance industry (Berkshire Hathaway owns Geico and several other insurers), where planning for the worst is a central part of the business model.

“We've seen some strange things happen in the world in the last 15 months,” he told his investors this year. “And we always recognize the fact (that) stranger things are going to happen in the future.”

Be like Buffett: Prepare your family for whatever might come by buying life insurance. COVID-19 has shown how vital it can be to secure coverage for a family breadwinner.

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About the Author

Clayton Jarvis

Clayton Jarvis

Reporter

Clayton Jarvis is a mortgage reporter at MoneyWise. Prior to joining the MoneyWise team, Clay wrote for and edited a variety of real estate publications, including Canadian Real Estate Wealth, Real Estate Professional, Mortgage Broker News, Canadian Mortgage Professional, and Mortgage Professional America.

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