Great Financial Advice From The World's Richest Man

The richest man in the world — $62 billion and counting. (Photo: CBS/AP)

Tim Ferris asks billionaire Warren Buffett for some financial advice:

“If you were 30 years old and had no dependents but a full-time job that precluded full-time investing, how would you invest your first million dollars, assuming that you can cover 18 months of expenses with other savings? Thank you in advance for being as specific as possible with asset classes and allocation percentage.”

Buffett's answer? The same advice I would give:

Buffett let out a small laugh and began. “I’d put it all in a low-cost index fund that tracks the S&P 500 and get back to work…”

I have virtually all of my 401k investments in index funds and sleep very well at night. I haven't looked at them in months and don't really feel any need to. Last I checked, they're doing fine.

If your investment strategy has you constantly scouring for financial information or looking for opportunities in publicly traded stocks or real estate that other people have missed, you may be missing something yourself. The best investments not only require little ongoing costs financially, but also require little ongoing costs in terms of time and stress. Run away from any advice that involves market-timing or the flipping of houses.

If you want to get rich, 1) work hard, 2) spend less than you earn, 3) try to match rather than beat the market, and... 4) after years of working -- don't quit work to go back to grad school. (Three out of four aren't bad, right?)

Here's some more advice from yours truly: Diversify your assets. Don't try to get rich quickly -- it takes time to build wealth and impatience on this front can destroy your finances. If you decide to buy a home, do so because you want to live in it -- not because you view it as the investment you can possibly make. Be wary of the latest "hot" investments (real estate, a specific type of stock, etc.) because you just might end up getting burned. Only borrow money for assets that you expect to appreciate -- a home, business, education, and (in some cases) investments. (I'd probably add basic transportation to this list -- while it doesn't appreciate, you usually need to it in order to get a job and start generating income.) If you do borrow, watch your cash flow and don't borrow more than you can afford to make monthly payments on.

Also, some non-financial advice: Be careful about how you measure success. Try to earn a living by doing something you reasonably enjoy. (You can partially make up for having a lower income by retiring later -- something more palatable the more you enjoy your job.) Rather than keeping up, let the Jones' win. Measure wealth by the richness of your relationships and experiences rather than by the size of your house or bank account. Remember that the best things in life are the things money can't buy.

Read my previous post on The Wisdom of Warren.