Warren Buffett is the seventh richest person in the world — behind Elon Musk, Bernard Arnault, Jeff Bezos, Bill Gates, Larry Ellison and Larry Page — with an estimated net worth of around $117 billion, according to the Bloomberg Billionaires Index.
Unlike some of his billionaire contemporaries, the Berkshire Hathaway CEO seems to enjoy living a simple life, and his strategies for smart investing and amassing wealth don't sound overly complicated — even during times of inflation.
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While very few people share Buffett’s investing prowess, the billionaire believes it's still possible to protect yourself against inflation if you follow one of his core philosophies.
“The best thing you can do is to be exceptionally good at something,” he said during last year’s Berkshire Hathaway annual shareholders meeting. “[People] are going to give you some of what they produce in exchange for what you deliver.”
Skills are inflation-proof
Buffett says you can mitigate the impacts of inflation by focusing on continuous self-improvement and staying on top of the game in your chosen field.
“Whatever abilities you have can't be taken away from you. They can't be inflated away from you,” he said. “The best investment by far is anything that develops yourself, and it's not taxed at all.”
That could mean getting a college degree, completing training courses, working with a mentor or simply reading more and educating yourself about different cultures, languages, innovations and so on.
The 92-year-old says you don’t need to go out of your way chasing skills that don’t serve you well, especially in these tricky inflationary times. Instead, he says, you should aim to do everyday things exceptionally well. For instance, he thinks strong communication is one of the most important skills out there.
“One easy way to become worth at least 50% more than you are now … is to hone your communications skills,” he previously said in a video posted on LinkedIn.
“If you can't communicate, it's like winking at a girl in the dark — nothing happens. You can have all the brainpower in the world, but you have to be able to transmit it, and the transmission is communication.”
Of course, surviving through inflationary times requires a little more than just strong communication skills. Once you’ve invested in yourself, you may want to consider investing in some of these other popular hedges against inflation.
Real estate
Real estate is generally a “good investment” during times of inflation, according to Buffett.
“They’re the businesses that you buy once and then you don’t have to keep making capital investments subsequently. So, you do not face the problem of continuous reinvestments involving greater and greater dollars because of inflation,” he said during the 2015 Berkshire Hathaway shareholders meeting.
“If you built your own house 55 years ago like Charlie [Munger] did, or bought one 55 years ago like I did, it’s a one time outlay, and you get an inflationary expansion in replacement capital without having to replace yourself.”
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If you want your real estate portfolio to grow beyond your home, you can invest in a residential real estate investment trust (REIT). REITs are publicly traded. They collect rent from tenants and pass that rent on to shareholders in the form of dividends.
Consider also using an online crowdfunding platform. These allow investors to pool their money together to buy property (or a share of property) as a group.
If you don’t want the pressure of making investment decisions yourself, investing apps and online platforms can help you invest in diversified real estate portfolios in ways that will seek to maximize your returns while keeping your fees low.
Stocks pricing power
Buffett has been around the block a few times, experiencing many highs and lows in the U.S. economy. He has managed a stock portfolio through periods of double-digit inflation rates in the 1970s and has plenty of insight on what to own when consumer prices spike.
In a letter to Berkshire Hathaway shareholders in 1981, the business juggernaut highlighted two characteristics that make a business well-adapted to an inflationary environment: 1) an ability to increase prices easily, and 2) an ability to take on more business without having to spend too much in order to do it.
Buffett likes high-quality businesses with low capital needs, such as Apple. The technology company boasts some impressive financial metrics — a testament to the company's efficiency, strength and negotiating power — which have enabled it to thrive during this period of inflation.
The tech giant ranks as Berkshire Hathaway’s largest stock holding at over $170 billion as of June 30, 2023, making up over 45% of the conglomerate’s entire portfolio.
“Our criteria for Apple was different than the other businesses we own,” Buffett said at the 2023 Berkshire Hathaway annual meeting. “It just happens to be a better business than any we own.”
Gold
While Buffett is known for being uninterested in gold investing — describing it in a 2011 letter to shareholders as an asset “that will never produce anything” — while other money mavens consider it to be a solid hedge against inflation because its purchasing power has remained relatively stable over time.
“The worth of a dollar can be weakened by inflation, but gold provides you with an edge to combat that decrease in purchasing power,” William Bevins, CFP, CTFA, told CBS News.
One can directly invest in gold by buying it in its physical form, either as bars, coins or jewelry.
Investing apps can also help you invest in the commodity by purchasing shares of gold mining companies on the stock market. For those looking for more diverse exposure, you can also invest in gold exchange-traded funds.
You may also want to consider opening a gold IRA, an individual retirement account that allows you to invest in precious metals in physical forms, like coins, instead of stocks, mutual funds and other traditional investments.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
