One of the most-thumbed books on personal finance in my local library is entitled Warren Buffett Invests like a Girl: And Why You Should Too. The author LouAnn Lofton meant no offense with a potentially provocative title – her essential point was that many women tend to take a patient, more temperate view toward investing than male counterparts. They tend to remain steady under pressure, less likely to succumb to risky moves based out of emotion or combativeness.

It’s certainly indisputable that Buffett takes the long view on stocks, shying away from hot technology stocks and other fads if they fall outside of his so-called “Circle of Competence”. It has created an interesting juxtaposition for investors seeking a role model to emulate. Any trader or investor would kill to have a record like Buffett’s – his record stands as the greatest stock picker of all time, the Lebron James of his field. And yet the behavior of so many of his admirers doesn’t jibe with his patient, long-term approach. Investors bounce from hot tip to hot tip, moving in and out of holdings in typically futile attempts to time the market.

The dirty secret is that it is fairly easy and straightforward for most investors to begin amassing significant wealth. It is primarily a matter of devoting as much as you can reasonably save into a broadly diversified portfolio that matches your risk tolerance and timeline. The real challenge is psychological – sticking to the plan, maintaining a sense of discipline and delayed gratification, and not allowing the bright, shiny objects along the way to distract you from your core strategy.

An instructive example was Warren Buffett’s famous bet in 2007. He declared that $1 million he invested in an unmanaged, low-fee index fund would outperform another $1 million held in a heavily managed hedge fund over the following decade. 10 years are almost up as of this writing – and outside of a significant market event, the Oracle of Omaha was right. The index fund is way ahead – through the end of 2015 earning 65.1 percent compared to the active fund’s 21.9 percent performance. Part of Buffett’s premise is that the 2-3 percent fees regularly charged by hedge funds are not justified by their performance track record.

The lesson to take away shouldn’t be that index funds are the be-all and end-all solutions for all investors, especially higher net worth individuals who likely need a bespoke approach to their funds. But we can all take away the lesson that sticking to a strategy rooted in fundamentals – rather than chasing the latest fad – will prevail over the long-term.

Your investment strategy should differ based on your needs and the phase of life that you’re in. Ultimately, your Personal Family Index is what should guide your investment strategy.

At Strategic Wealth Partners, the Personal Family Index is a figure developed through our financial plans. It is the necessary amount of risk required for our clients to hit their goals. This strategy ensures that clients are using a tailored investment strategy that revolves around their personal needs and beliefs. Instead of what is all too common: an off the shelf portfolio with a pre-defined level of risk that may or may not align with your needs.

The Personal Family Index is updated annually in our financial plans and also used for rebalancing decisions on a quarterly basis. Rather than focusing on short term fads, our clients keep focused on the longer term goals and adjust their portfolio based on the risk required for them to have a successful financial plan.

To learn more, reach out today.

Want to read more about Warren Buffet’s investment strategies? Check out these insights from his 2018 shareholder letter.


About the Author:

Mark Tepper, CFP

Mark Tepper is President and CEO of Strategic Wealth Partners, a wealth management firm based in Independence, Ohio, and host of The Capitalist Investor podcast. Follow him on Twitter @MarkTepperSWP.

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