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Where should you invest your first million?

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My friend Tim Ferris (author of the Four Hour Workweek, which I reviewed here and hundreds of iwillteachyoutoberich readers bought) asks Warren Buffet how someone should invest their first million.

What do you think Warren Buffet says?

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16 Comments

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  1. This must be an excellent affirmation for you. Way to go…

  2. Right again, Ramit. Interesting that comment about Ben Franklin, too. I’m now remembering an early title we tossed about, which you should still use, somehow.

  3. My guess would be in an index fund – low fees and no attempts by a money manager to try and beat the market. Managers like Buffet are rare, and most are actually just lucky, so you’re better off with an index.

  4. Great, solid advice. I like how he deliberately states that people will not tell you to put money into index funds because they will not make commissions off of it. How can you argue with the richest man in the world?

  5. I agree that index funds are an excellent choice for most individual investors. Why, then, do I host a web site whose raison d’etre is to help investors – individual as well as institutional – discover tomorrow’s best-performing stocks . . . today?
    The answer to that question is both simple and compelling: There always have been – and it can reasonably be argued that there always will be – select stocks that decisively outperform the market averages. Most investors are familiar with the performance of Microsoft and Intel during the ‘80s and ‘90s, Dell Computer and Cisco Systems during the ‘90s and Google during the current decade. The performance of these stocks offers convincing proof that select stocks can and do outperform the market averages.

  6. The “and get back to work…” part of Buffet’s answer is the message he wanted to pass. Work. Don’t let investing distract you.

  7. Excellent blog article.

    I especially like his simple but elegant answer of index funds and getting back to work.

  8. Wow…that was almost spot on with what I was about to say (I thought this was just an “Ask the Readers” type post).

    Anyways, I was about to say that I’d throw it in some AAA bonds and keep doing what I do. I’m 23 and I love my job 🙂

  9. Holding an S&P 500 index fund over the last 10 years would have given you about 5% average return in that time. Factor in inflation and if that investment happened to be in a taxable account and your return is basically nothing. All the while, your are subject to major market risk and fluctuations.

    Buffett made his money through company takeovers/risk arbitrage and being a fierce negotiator for his company/shareholders….not by investing in an index fund.

    This is a classic case of being quoteable, but not correct. By the way, I’m honestly a huge WB fan! Below is the url to more of his famous quotes…
    http://en.wikiquote.org/wiki/Warren_Buffett

  10. Evan, you bring up a good point that’s worth elaborating.

    Well, let’s not beat around the bush. Buffett is a better investor than the vast majority of us. It’s as simple as that. Yes, he does things differently from us, but that’s because he is able to mitigate the risk that most everyone else would be exposed to simply because of his skill level. And hence, he is also able to enjoy the higher return.

    Truth is, Buffett’s investment style is also notoriously cautious. And I don’t think he’s being hypocritical by saying that a 30 year old (with an assumed investing knowledge of an “average” 30 year old) should just focus on low cost index funds. Again, it’s following his belief that one should invest into the market, not constantly try to out-smart it.

    To do the latter would require what Buffett believes to be an extraordinary amount of time, energy, and intellectual effort towards such pursuit. It’s something that not everyone has the time nor the opportunity to do so.

    However, if you do have the time, energy, and passion for it, then he has said that one should not diversify at all. Quoting from one of his speeches, “5 to 6 positions is all you need.”

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