Saving for your retirement is only half the battle. It's equally important to invest your savings wisely so your money is able to grow over time. And you may be inspired by investing giant Warren Buffett to hand-pick a winning portfolio. But taking a much easier way out could actually be a better bet for you.
Why it doesn't pay to invest like Warren Buffett
Warren Buffett is a billionaire many times over. But the bulk of Warren Buffett's wealth comes from investments, not salary.
In 2023, Buffett only got paid $100,000 in salary form. Rather, it's his portfolio that's turned him into the financial legend he is today.
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But while Buffett clearly has talent in the context of picking investments, there are many of us who, frankly, don't possess those skills -- and that's OK.
Building a winning portfolio takes more time than you might imagine. You need to assess each stock you add to your holdings and keep tabs on its performance year to year, all the while making sure your portfolio is diversified and balanced. That can be a tall order for people who don't have the time to dedicate to that.
That's why investing like Buffett may not be your ticket to a wealthy retirement. A better bet may be to simply load your portfolio with S&P 500 index funds.
The nice thing about index funds is that they're passively managed, so you're generally not looking at hefty fees that could eat away at your returns. By simply investing in the S&P 500, you're taking a lot of the guesswork out of the equation, all the while gaining instant diversification.
In fact, if you put $300 into an S&P 500 index fund over 40 years and score a 9% return during that time, which is a bit below the index's historical average, you'll end up with a retirement portfolio worth a little more than $1.2 million. That could be enough to pay your senior expenses and have plenty of money left over to do the things you've always wanted to do.
Even Buffett agrees that index funds are a great bet for everyday investors
It's OK to lack confidence in your ability to build a winning retirement portfolio. It's also OK to not really want to do the work, either.
You should know that relying on the S&P 500 to fund your retirement is a strategy that Buffett himself advocates for everyday investors. In 2017, he was quoted as saying, "Consistently buy an S&P 500 low-cost index fund...Keep buying it through thick and thin and especially through thin."
Remember, you can admire Warren Buffett for the wealth he's amassed in his lifetime. But that doesn't mean you have to follow his lead when it comes to an investment strategy.
Also remember that investing in S&P 500 index funds doesn't have to be an all-or-nothing prospect. If you're comfortable buying some individual stocks you feel will beat the index, go for it. But don't feel bad in any way if you decide that you're going to put your money into the broad market and call it a day.
