Warren Buffett

The bar for financial freedom may be much lower than you think. Take an ordinary person who spends $60,000 a year. By the 4% rule, they need $1.5 million to be financially free. Spend $100,000 a year and the number is $2.5 million. The next question is usually: how on earth do I accumulate that? Buffett’s answer is straightforward — invest regularly and for the long term in low-cost index funds, which have compounded at roughly 7% a year. Subtract 3% inflation and you keep about 4% in real terms. ...

Why do investors either lose money consistently, or make money and then give it all back? The answer is simple: if the method is wrong, how could the result be right? So stop, and ask yourself honestly: from the first day you started investing until today, are you up or down? If you are up — can you sustain a return above 10% a year for five, ten, even twenty consecutive years? If you can, congratulations: you could write a book about investing, and you can stop reading here, because the rest will only waste your time. ...

By investing regularly in an index fund, an investor who knows nothing can outperform most professionals. When dumb money admits it is dumb, it stops being dumb. For most investors, institutional or individual, the best way to own stocks is to hold a lowest-cost index fund. Those who follow that path will, after fees and costs, end up ahead of the vast majority of professionals. Very low-cost index funds are extraordinarily friendly to investors. For most people, they are the best choice there is.