Warren Buffett's Message to Near-Retirees: Never Do These 6 Things With Your Money

Warren Buffett, one of the richest people in the world, is the chairman emeritus of Berkshire Hathaway, an investment company. He regularly advises on the best ways to manage money.

Buffett's advice is surprisingly straightforward. He tells people to beware of expensive fees, especially when they set up a retirement plan. He also encourages people to manage their money wisely, avoid high-interest debt, and invest in diversified index funds for the long term. Here are some of the main money mistakes he says to avoid.

Trying to time the market or pay unnecessary fees

In his 2014 letter to shareholders, Buffett outlines several risks that people often take with their money. He says investors often try to time the market, trade actively (rather than passively), and pay high, unnecessary fees. He, of course, doesn't recommend any of this. Instead, he recommends people invest in straightforward S&P 500 index funds, regardless of their net worth. Avoiding active trading is especially important for those who are near retirement. Many financial experts recommend that the closer you get to retirement, the more conservative your overall investment portfolio should be.

Using borrowed money to invest in the market

Buffett says another investing behavior that could destroy returns is using borrowed money to invest in the market. He explains that because the market is unpredictable, using borrowed money to invest is essentially a losing battle. He explains that no one could predict how the market performs, not even him. That said, he recommends that people invest with the goal of creating a long-term, diversified portfolio that's meant to stay and grow in the market for several decades.

Panic sell during a market downturn

Buffett encourages people to keep their money invested for the long haul. He says that panic selling during a downturn might have a negative impact on your nest egg for many years to come. Workers who are younger may have time to recover from financial mistakes, like pulling money from the market quickly without thinking through the consequences. However, those who are a few years away from retirement likely do not have the time horizon to recover from a significant financial misstep.

Treating credit cards as an emergency fund

Buffett is a huge proponent of keeping a large emergency fund. In fact, his company, Berkshire Hathaway, currently has a massive amount of cash on hand. Buffett keeps a cash buffer so that he has available money to make good investment decisions as they come up. However, many people go into retirement without an emergency fund in place. Given that you switch from a salaried income to a fixed income in retirement, having an emergency fund could prevent you from going into credit card debt. Without a 3- to 6-month emergency fund, you risk putting any unexpected expense on a credit card, which could take years to pay off and add stress to your golden years.

Racking up credit card debt for everyday purchases

Buffett says paying off credit card debt is the best return on investment available. With the average card rate around 21%, high-interest debt could balloon quickly, making even minimum payments hard to manage on a fixed income. Paying it down before retirement frees up cash flow and could make the transition easier.

Living as though you have all the money in the world to spend

While Buffett is very wealthy, he is known for living quite frugally. For instance, he drives a Cadillac with hail damage, and he has lived in the same house for 50 years. He encourages people to avoid lifestyle inflation and to invest their money for their future rather than racking up debt and spending more than they make.

These tips apply to anyone regardless of portfolio size

Interestingly, Buffett has given the same advice to personal friends who were in significant debt, all the way to professional athletes who make millions of dollars a year. His advice stands regardless of portfolio size, and he has been sharing similar tips for decades. His core financial principles are straightforward, regardless of whether or not people have significant investment knowledge.

Bottom line

Some of the financial mistakes above could delay your retirement if you make them, or at least make your retirement less profitable. People look forward to retirement during their working years, but it involves taking an active role in planning and investing in your future. Ultimately, Buffett's advice has certainly worked for him and his company over the long term.

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