What separates people who achieve something from people who do not may not be talent at all. It may be one habit that everybody can adopt but 90% of people cannot sustain: reading every day. Charlie Munger said that most of the smart people he met in his life shared one excellent habit — they read every day. Buffett is a library on wheels; Munger is a bookshelf with two legs. The sheer volume they read astonishes me. ...
If you have $1,000,000 and plan to retire early on it, how much can you actually spend each year? Spend too much and you risk running out of money before you run out of time. Spend too little and you shortchange yourself for decades. Is there a withdrawal rate that is safe enough to last forever? There is. It is called the 4% rule. What the rule says Assume inflation runs at 2%. If your portfolio compounds at 6% a year, you can withdraw 4% of it every year without your capital shrinking. ...
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.