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Warren Buffett is known for his generosity — but also his frugality.
That might be why he pulled the plug on large cash gifts for his family after learning they were blowing through the money as quickly as they got it.
In a 2019 ThinkAdvisor interview (1), Buffett’s former daughter-in-law, Mary Buffett, recalled when he gifted her $10,000 in hundred-dollar bills. She reminisced, “As soon as we got home, we’d spend it, whooo!”
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As the king of investing — not spending — however, the CEO of Berkshire Hathaway quickly decided the gift of shares would be a better investment for his family’s future.
With the holidays just ahead, you might be lucky enough to get some cash, as Buffett’s family used to. Tempting as it may be to spend it, follow these tips to use it in a way that the Oracle of Omaha would approve of.
1. Start saving
One of Buffett’s core principles is the power of compounding: where you can earn returns on both your initial investment and its accumulated growth. For example, had Mary invested her $10,000 and allowed it to grow at a 5% annual compounded rate for 10 years, it would have amounted to $16,288.95. But finding the best possible rate isn’t always easy.
Park your cash in a high-return account
When interest rates are moving, high-yield savings accounts can feel like a moving target. You might be earning a competitive APY one month, only to have your bank quietly lower it the next. That’s the trade-off with HYSAs: they’re flexible, but your returns may not be guaranteed.
With the Fed cutting interest rates recently, many savers are already seeing those yields drop. That makes locked-in returns more valuable than ever — and that’s where a certificate of deposit (CD) shines.
With a CD, you lock in a guaranteed rate upfront, so your earnings stay steady for a set term, even if rates slip further. It’s predictable, reliable growth, which is something you don’t always get with traditional accounts.
Another option is a high-interest savings account. With SoFi, you can get fee-free banking on your checking account. So, no fees, no monthly maintenance costs and no minimum balance requirements.
You can earn 4.30% APY on savings balances and 0.50% APY on checking balances with direct deposit or qualifying deposits too. When you set up a direct deposit, new account holders can even get a cash bonus up to $300.
Deposits are insured up to $250,000 through SoFi Bank, with additional coverage up to $2 million through the SoFi Insured Deposit Program.
2. Invest in the market
Beyond saving, another way to take advantage of compound returns is through investing.
Investing is higher risk than a savings account, but it can also lead to higher returns. That’s why when Buffett started gifting his family shares instead of cash, Mary Buffett wisely chose to retain her gifted shares in a diversified trust, rather than cashing them out.
But you don’t need to invest in private trusts to ensure your portfolio is diversified.
One of the easiest ways to invest is to open a self-directed trade account with SoFi. This DIY approach allows you to invest with no commission fees, plus for a limited time you can get up to $1,000 in stock when you fund a new account.
SoFi is designed to help you learn investing as you go, with real-time investing news, curated content and the data you need to make smart decisions about the stocks that matter most to you.
Read More: Many Americans overpay for these 5 ‘must-have’ items — how many are on your list?
3. Invest in real estate
In 2012, Warren Buffett told CNBC (2) that if there was a way to buy thousands of single-family homes at once, and to manage them easily, he would “load up.” He also emphasized he’d take out mortgages at “very, very low rates.”
Not everyone can purchase multiple properties, nor can they tap into low mortgage rates. After all, the average rate for a 30-year mortgage was 3.32% in 2012. These days, a 30-year fixed mortgage rate is 6.22% (3).
There are, however, ways to invest in real estate and avoid some of the downsides of the market.
For example, mogul offers fractional ownership in blue-chip rental properties. Their platform gets you access to investment opportunities with monthly rental income, real-time appreciation, and tax advantages — but without any of the headaches involved in being a landlord.
Founded by former Goldman Sachs real estate investors, the team hand-picks the top 1% of single-family rental homes nationwide for you. Simply put, you can invest in institutional quality offerings for a fraction of the usual cost.
Each property undergoes a vetting process, requiring a minimum 12% return even in downside scenarios. Across the board, the platform features an average annual IRR of 18.8%. Their cash-on-cash yields, meanwhile, average between 10 to 12% annually. Offerings often sell out in under three hours, with investments typically ranging between $15,000 and $40,000 per property.
Every investment is secured by real assets, not dependent on the platform’s viability. Each property is held in a standalone Propco LLC, so investors own the property — not the platform. Blockchain-based fractionalization adds a layer of safety, ensuring a permanent, verifiable record of each stake.
Getting started is a quick and easy process. You can sign up for an account and then browse available properties. Once you verify your information with their team, you can invest like a mogul in just a few clicks.
4. Plan for the future
Another reason Buffett’s not a big fan of cash gifts is that its value erodes over time. Buffett famously said, “If you don’t find a way to make money while you sleep, you will work until you die.”
Investing for retirement
To avoid working after retirement, you need to be prepared with the right investments and accounts. For instance, qualified Roth IRA withdrawals are tax-free. So your earnings and any growth are tax-free, too.
Selecting the right account can be daunting, though. RothIRA.org connects you with pre-screened financial advisors who can guide you in building an investing strategy that meets your needs.
When you use RothIRA.org, you’re custom-matched with two or three advisors near you who meet your specific needs. Your financial advisors will contact you to set up your initial one-on-one consultation — for free, with no obligation to hire.
Investing in a gold IRA
You could also turn a cash windfall into a physical asset, like gold, to diversify your portfolio. Gold has historically acted as a hedge against inflation, and many consider it to be a more secure place to invest their wealth.
Opening a gold IRA with the help of Goldco allows you to invest in gold and other precious metals in physical forms while also providing the significant tax advantages of an IRA.
With a minimum purchase of $10,000, Goldco offers free shipping and access to a library of retirement resources. Plus, the company will match up to 10% of qualified purchases in free silver.
If you’re curious whether this is the right investment to diversify your portfolio, you can download your free gold and silver information guide today.
Getting ready for the future
Most of Buffett’s wealth will only be shared with his kids once he passes on. His ethos is you should “give your kids enough so they can do anything, but not so much that they’ll do nothing.” Whether or not you agree, you’ll want to ensure your own wishes are honored. One way to do so is by ensuring your will is in order. Another way is to consider life insurance, to keep your loved ones financially protected in the event of your passing.
A term life insurance policy is one way to provide financial security for family members. Term life insurance also tends to be more affordable than whole life insurance.
Term policies tend to include paying a premium for a specific period of time — say 10 to 30 years — with the understanding that if you pass away during that period, your beneficiaries would receive a cash payment. However, if you pass after the term has expired, your beneficiaries won’t receive a death benefit.
With Ethos, you can get term life insurance in 5 minutes, with no medical exams or blood tests.
Ethos provides policies with up to $2 million in coverage, starting at just $2 per day.
Their application process ensures you get flexible coverage options quickly and transparently, allowing you to focus on what matters most: family, not paperwork.
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Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
ThinkAdvisor (1); CNBC (2); Federal Reserve Bank of St. Louis (3)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.