Warren Buffett: 5 Lazy Investments That Beat Inflation Every Time

All right, let me tell you something. After about 80 years in the investment game, I've come to realize something most folks just don't want to accept. The best investments are downright boring. I'm talking so boring that when I start describing them, I can practically see people's eyes glaze over. They're expecting some kind of secret, some complicated strategy reserved for billionaires. But the truth is, the investments that have made me the most money are the ones I can practically ignore. You know, set it and forget it, as they say. Now, some might find the word lazy insulting, thinking that investing should be hard work, active, and exciting. But I've always maintained that if you're getting thrills from your investments, you're likely doing it wrong. The goal isn't excitement. The goal is to beat inflation, maintain your purchasing power, and steadily grow your wealth year after year without stressing yourself out. And there are indeed investments that achieve exactly that. They're simple, reliable, and require almost no effort on your part. That's what I want to delve into today. Five investments that just about anyone can make. You don't need to be a genius, you don't need to be rich, and you certainly don't need to spend all day glued to CNBC. You simply need to understand them and then possess the discipline to leave them alone, because that's honestly the hardest part. Not the initial purchase, but the subsequent restraint. Let's walk through them. First, and perhaps most importantly, we have low-cost index funds. I've been preaching this for decades, yet people still seem hesitant to listen. They dismiss it as too simple, too boring, but simplicity works. An index fund essentially owns a small piece of every company within a particular index, like the S&P 500, which represents the 500 largest companies in America. When you invest in an S&P 500 index fund, you're instantly a part owner of Apple, Microsoft, Amazon, Berkshire Hathaway, the whole shebang. And here's the beauty of it. You don't have to pick winners, analyze complicated financial statements, or try to time the market. You simply own America. And over time, America grows, businesses innovate, they become more productive, earn more money, and your investment grows right along with them. Historically, the S&P 500 has delivered average returns of around 10 percent per year, some years higher, some lower, but roughly 10 percent over the long haul. Now, considering inflation typically runs about 3 percent per year, your real return, after accounting for inflation, is around 7 percent. That means your money effectively doubles in purchasing power every 10 years or so, and you don't have to lift a finger. Just hold on to it. Now, I always advise people to avoid expensive index funds. Instead, opt for one from Vanguard, Fidelity, or Schwab, with fees around 0.03 percent or 0.04 percent per year, because every dollar you pay in fees is a dollar that can't compound and grow for you. Over 30 or 40 years, those fees can really add up. I even made a bet back in 2007 wagering a million dollars that a simple S&P 500 index fund would outperform a collection of hedge funds over a 10-year period. Hedge funds, with their fancy managers, supposedly the smartest minds on Wall Street, charging 2 percent per year plus 20 percent of the profits. And guess what? The index fund absolutely crushed them. It wasn't even close. The index returned approximately 7.1 percent per year, while the hedge funds limped along at 2.2 percent. That's the power of low costs and broad diversification. You don't need to be clever. You just need to be sensibly lazy. So, if you only take one piece of advice from this entire discussion, let it be this. Put your money in a low-cost S&P 500 index fund and then ignore it for 30 years. That's it. That's the whole strategy. Boring? Absolutely. Effective? Without a doubt. The second investment, and this often surprises people, is Treasury Inflation Protected Securities, or TIPS. I know, it doesn't exactly sound thrilling. Government bonds? How dull. But hear me out. Regular bonds have a fundamental problem. When inflation rises, the value of your bond declines because that fixed interest payment you're receiving buys less and less. TIPS, however, are specifically designed to combat inflation. The principal, the original amount you invested, adjusts with inflation each year. So, if inflation is 3 percent, your principal increases by 3 percent, and the interest you earn is based on that adjusted principal, meaning you're guaranteed to beat inflation. Guaranteed. Now, the returns aren't going to be spectacular. You won't get rich overnight with TIPS, but that's not the point. The purpose is preservation, safety, and knowing that your money will maintain its purchasing power regardless of what happens with inflation. And every portfolio needs some of that, some stability, some balance. I always say, don't put all your eggs in one basket. You want stocks for growth, but you also need some safe assets for when times get tough. TIPS are perfect for that. And the beauty of them is you can genuinely be lazy with TIPS. You buy them, you hold them until maturity, and that's it. You don't have to worry about interest rate fluctuations or inflation. It's all taken care of automatically. Now, can you lose money with TIPS in the short term? Sure. If you sell before maturity, when interest rates have shifted, you might incur a loss. But if you hold until maturity, you're guaranteed your principal plus inflation. That's powerful. That's peace of mind, especially as you approach retirement and need some certainty in your life. The third investment, and this one's close to my heart, is dividend aristocrats. What's a dividend aristocrat? Well, it's a company that has increased its dividend every single year for at least 25 consecutive years. Think about that, 25 years. That means they navigated multiple recessions, numerous market crashes, and still managed to raise their dividend. Companies like that are special. They possess genuine competitive advantages, strong balance sheets, and consistent earnings. Think of companies like Coca-Cola, Johnson & Johnson, Procter & Gamble, and 3M. And here's what I truly love about dividend-paying stocks. They force the company to be disciplined. When a company pays a dividend, they can't simply squander all their cash on frivolous acquisitions or excessive executive bonuses. They're obligated to return money to shareholders every quarter, and if they intend to keep increasing that dividend year after year, they better ensure their business is growing and generating real cash flow. So, as an investor, you get the best of both worlds. You receive the dividend income, which you can reinvest or spend, and you benefit from the growth of the underlying business. Now, dividend stocks might not skyrocket as quickly as some high-flying tech stocks, but they also don't crash as dramatically. They're steady, reliable, boring, and over the long term, they often outperform the market. I recall a study that examined returns over several decades and discovered that dividend-paying stocks outperformed non-dividend-paying stocks by a considerable margin. Why? Because dividends compound. You take that dividend check, reinvest it, and buy more shares. Those shares generate more dividends, you reinvest those, and so on. It's like a snowball rolling downhill, growing larger and larger, and you don't have to do anything except resist the temptation to spend the dividends. Just reinvest them automatically if possible. And 30 years later, you'll be astonished at how much you've accumulated. Number four, and this is particularly important if you're young, is real estate investment trusts or REITs. Now, I've previously stated that your personal home is generally not a good investment, and I stand by that. However, income-producing real estate is a different story. It can be a very sound investment. The problem is that most people lack the capital or expertise to purchase apartment buildings, shopping centers, or office buildings. That's where REITs come into play. A REIT is essentially a company that owns and manages real estate, and by law, they're required to distribute at least 90% of their taxable income as dividends. So, you receive a steady income stream, plus you gain exposure to real estate, which tends to keep pace with inflation because rents typically increase over time. Now, not all REITs are created equal. Some are better than others. I prefer REITs that own assets people can't live without. Hospitals, cell towers, data centers, self-storage facilities, things that will remain essential regardless of the economic climate. And here's the fantastic part. You can purchase REITs in your regular brokerage account, just like stocks. You don't have to deal with tenants, toilets, or those dreaded midnight calls about broken water heaters. You simply own shares in a company that handles all of that for you, and they send you a check every quarter. Now, REITs can experience short-term volatility. When interest rates rise, REITs often decline because higher rates increase their borrowing costs. However, over the long term, they tend to perform very well, especially the high-quality ones, and they're an excellent way to diversify your portfolio because real estate doesn't always move in tandem with stocks. So, when the stock market is having a rough year, your REITs might be holding their own, and vice versa. That's diversification. That's sensible risk management. And again, it's lazy. You buy a REIT, collect the dividends, reinvest them, and you don't have to do anything else. And the fifth investment, which might surprise you, is your own skills and career. Now, I realize that doesn't sound like an investment. It sounds like work. But hear me out. When you're young, your greatest asset isn't your savings account. It's your earning power, your ability to generate income over the next 30 or 40 years of your career. And if you invest in yourself, if you develop skills that are valuable, that investment will pay dividends for the rest of your life. Think about it. If you earn $50,000 a year and you invest in yourself, take a course, obtain a certification, improve your skills, and that increases your income by just 10 percent, that's an additional $5,000 per year every year for your entire career. Over 30 years, that's $150,000 in extra income before you even consider investing it. And unlike stocks or bonds, no one can take that away from you. I've always maintained that the best investment I ever made was a Dale Carnegie public speaking course. It cost me $100 back in the 1,950 seconds, but that investment transformed my life. It boosted my confidence, allowed me to teach, communicate my ideas, build relationships, and the return on that $100 was immeasurable. So, when I talk about lazy investments, this one does require some initial effort. But once you acquire the skills, they compound just like money. You improve, you become more valuable, and you earn more. And that earning power automatically beats inflation because skilled labor becomes increasingly valuable over time, particularly in a growing economy. So, read, learn, take courses, find mentors, and strive to excel at what you do. That's an investment that will pay off every single day for the rest of your life. Now, let me tie all of this together. These five investments, index funds, tips, dividend aristocrats, REITs, and yourself all share a common characteristic. They all beat inflation over time. They all generate returns without requiring you to constantly trade, monitor, or stress out. And they all benefit from the power of compounding. Compounding is the most powerful force in investing, perhaps in all of finance. Albert Einstein supposedly called it the eighth wonder of the world. And he wasn't wrong. When you invest $1,000 at 10% per year, after one year, you have $1,100. After two years, you don't have $1,200. You have $1,210 because you earned interest on the interest. After 10 years, you have $2,594. After 20 years, $6,727. After 30 years, $17,449. The same $1,000, the same 10% return. But time, time makes all the difference. And that's why these lazy investments are so potent, because you're not interrupting the compounding process. You're not selling when the market dips. You're not trying to time the market. And you're not paying taxes every time you trade. You simply let it compound year after year after year. And considering inflation is running at 3%, maybe 4% in bad years, but you're earning 7%, 8%, or 10% on your investments, you're not only keeping pace with inflation, you're coming out way ahead. Your purchasing power is growing. Your wealth is growing. And you're not doing anything. You're just waiting, being patient. That's the secret, really. Patience. Now, I want to address something that often trips people up. They hear about these lazy investments. They understand the concept. And they know they should do it. But they don't. Why? Because it's too boring. Because their neighbor told them about some hot stock that doubled in three months. And they think, I'm missing out. I need to get in on that. So they abandon the boring strategy and start chasing returns. And almost invariably, they lose money. The ironic thing about investing is that the more exciting it is, the more likely you are to lose money. If you're getting an adrenaline rush from your portfolio, you're probably gambling, not investing. Real investing is boring. It's buying quality assets and holding them for decades. It's like watching paint dry. But it works. And the exciting stuff, day trading, options, crypto speculation, whatever the hot trend is this year, that usually doesn't work, at least not for most people. There's always someone who got lucky, who turned $1,000 into $100,000 on some outrageous bet. But for every one of those people, there are 99 others who lost money, blew up their accounts, and got crushed. You just don't hear about them. So don't confuse luck with skill. And don't mistake excitement for returns. Stick with the boring stuff, the lazy stuff, because boring wins over time. Let me tell you about a conversation I had with a young person recently. They said, Warren, I'm 25 years old and I have $10,000 saved up. What should I do with it? And I said, well, first of all, congratulations. Most two five-year-olds don't have $10,000 saved, so you're already ahead. Second, here's what I'd do. I'd put $8,000 in an S&P 500 index fund, $1,000 in a REIT, and keep $1,000 as an emergency fund. They looked disappointed. They said, that's it? That's the whole strategy? And I said, yep, that's it. But I continued, here's the important part. Don't touch it. Don't check it every day. Just leave it alone. Add to it every month if you can, even if it's just $100 or $200. But other than that, forget about it. Come back in 40 years when you're 65 and you'll be very, very wealthy. They didn't believe me. I could tell. They thought there had to be more to it, but there isn't. That's the whole game. Save. Invest in boring things. Don't touch it. And wait. 40 years later, if they followed that advice, that $10,000 at 10% per year becomes $452,000. And if they added just $200 per month, that becomes over $1.3 million. More than a million from being boring, from being lazy. Now, let me talk about the enemy. The enemy of lazy investing isn't the market. It's not inflation, and it's not recessions or crashes. The enemy is you, your emotions, your impatience, and your fear and greed. When the market crashes, and it will crash, it always does, you're going to be tempted to sell to get out before it gets worse. Don't. When the market is soaring, and it will soar, you're going to be tempted to buy more at high prices to chase the rally. Don't. The lazy strategy only works if you stick with it through good times and bad, and that's hard. That requires discipline. It requires ignoring the noise. I always say, if you can't handle seeing your portfolio drop 30% or 40% without panicking, then you probably shouldn't be in stocks at all. But if you can handle it, if you can remain calm when everyone else is freaking out, well, that's when you make the real money, because the best time to invest is when everyone else is scared when stocks are on sale. But most people do the opposite. They sell when stocks are cheap, and they buy when stocks are expensive, and then they wonder why they lose money. So the lazy strategy helps with this, because you're not making decisions based on emotion. You're just holding, no matter what. Market up, hold. Market down, hold. Don't sell, don't panic, and don't try to be clever. Just hold. Let me tell you something else that people need to hear. You don't need to beat the market. So many investors are obsessed with outperforming the market, with being better than average. But here's the thing. If you simply match the market, if you just earn that 10% per year that the S&P 500 has historically delivered, you'll be in the top 10% of all investors. How is that possible? Because most people underperform the market badly. They trade too much, they pay high fees, and they buy high and sell low. So just by being lazy, just by holding an index fund and doing nothing, you're already beating most professional investors, most hedge funds, and most mutual funds. That's why I always say, don't try to be extraordinary. Just try to be ordinary. Ordinary in investing is actually extraordinary, because ordinary is so rare. Now I want to address one more thing before we wrap up. Inflation. People are scared of inflation, and I understand why. When prices rise, your money buys less. But here's what you need to understand. These five investments are designed to beat inflation. Stocks beat inflation because companies can raise prices. If the cost of everything goes up, companies charge more for their products, so their profits increase, and stock prices follow suit. Tips beat inflation by definition. That's literally what they're designed to do. Dividend aristocrats beat inflation because they keep raising their dividends, so your income stream keeps growing. REITs beat inflation because rents increase with inflation, so the income from real estate goes up. And your skills beat inflation because skilled labor becomes more valuable over time. So if you have these five things in your portfolio and in your life, you're protected. Inflation can run at 5%, 10%, or whatever. You're still coming out ahead. The people who get hurt by inflation are the ones holding cash, the ones who are too afraid to invest. Cash loses value every single year, guaranteed. If you have $10,000 in a savings account earning 1% interest and inflation is 3%, you're losing 2% per year in purchasing power. That $10,000 buys less and less every year. But if you invest it, if you put it to work in these lazy investments, you're not just keeping up with inflation, you're beating it by a wide margin. Well, I think I've covered the main points. Five lazy investments that consistently beat inflation. Index funds, tips, dividend aristocrats, REITs, and yourself. Simple, boring, and effective. You know, I've been doing this for 80 years and I've seen it all. Booms, busts, manias, and crashes. And through it all, the one thing that has remained constant is this. The people who succeed aren't the smartest, they're not the ones with the best information, and they're not the ones who trade the most. They're the ones who are patient, who are disciplined, and who stick with the plan. They're the lazy investors. And I mean that as a compliment, because lazy in investing is smart. It means you're not meddling, you're not trying to outsmart the market, and you're not letting your emotions dictate your actions. You're simply allowing time and compounding to work their magic. And that's how wealth is built. Not quickly, not with fireworks and excitement, but slowly, steadily, almost invisibly, until one day you wake up and realize you're wealthy. And you didn't have to do anything crazy to get there. You just did the boring things consistently for a very long time. That's the secret. That's the whole game. So if you're young, start now, even if it's just a little bit. Put something in an index fund, reinvest your dividends, add to it every month, and then forget about it. Go live your life. Spend time with people you love. Do work that matters to you, and let your investments just sit there growing and compounding. 30 years from now, you'll thank yourself. And if you're older, if you're already in your 40 seconds, 50 seconds, or 60 seconds, it's not too late. You might not have 40 years, but you've got 20, maybe 30. That's still enough time for compounding to work its magic. So start today. Make the boring choice, the lazy choice, because boring is beautiful, and lazy is smart. Well, I think that's all I wanted to say today. Thank you for listening. Thank you for allowing an old man to ramble on about investing for a while. I hope this helps, and I hope you'll take something from this. Remember, you don't need to be brilliant. You just need to be sensible and patient. Always patient. Good luck out there, and remember, boring wins every time. Thank you.