With a net worth of $79.2 billion Mr Gates is still defending his position in Forbes as the richest person in the world. Most people don’t know that Gates dropped out of Harvard University in order to start up Microsoft. Bill is also known for his philanthropic ventures such as Giving Pledge. So what can we learn from watching this legend in action? Is it possible to follow his strategy in order to try and emulate even a fraction of his success?
Here are 4 tips on how to invest like the one and only Bill Gates. You may not become the next richest person in the world, but you may just see your profits increase.
- Don’t Pick Stocks – While Gates managed to get rich by picking stocks, it is probably not going to work for you. CEO of investment advice company, AlphaClone, Maz Jadallah, states; “If you’re not an expert at picking stocks, you have no business picking stocks.” He suggests for those who aren’t 100% comfortable in their stock picking abilities to invest their money into an index fund such as the S&P 500 (UK equivalent – SP Europe 350) and simply leave it to grow. Not so glamorous, but this is probably what a smart investor like Gates would advise you to do.
- Select a Manager Carefully – When investing there are three risk areas to be considered: Market risk (cannot be controlled), company risk (can be reduced by picking a good manager), and manager risk (time will tell if you really picked an adept manager). Just because you know you need someone to manage your investments doesn’t mean you know who will be most suited for the job. Look for a manager with proven experience in reducing liability, in terms of both market risk and company risk.
- Keep a Cash Cushion – Gates is a strong advocate of investing money in exchange-traded funds that track indexes such as the S&P 500, although he urges the importance of keeping at least 10% aside as a cash cushion. He advises that this 10% be invested in short-term bonds so that you have something to fall back on if things go wrong.
- Diversify your Portfolio – By investing in a single area within the market you are only increasing your risk. If that particular industry experiences a downturn you could lose everything. Index funds are much safer as they are already diversified.