With a net worth of around $200 billion or more, Jeff Bezos is usually the second richest person in the world behind Elon Musk. While he made much of his riches as the founder of the e-commerce giant Amazon, Bezos also grew his wealth by investing and branching out into other areas, such as media, aerospace and more.
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It’s indisputable that Bezos is one of the most recognized entrepreneurs in the world, but his success didn’t happen overnight. In 1994, the then 30-year-old turned his idea of selling books online into a reality that launched his global empire, but it took an unstoppable mindset and commitment.
“You can be grinding for four years with no results and in the fifth year, become the biggest thing on the planet. The power of not giving up is real,” Bezos is credited with saying.
When it comes to financial decisions and planning, the billionaire takes a lead worth following, and if you’re planning for retirement, taking good advice is important. Here are three tips Bezos swears by that can help retirees avoid financial disasters.
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Free Cash Flow Is Important
In 2004, Bezos wrote a letter to shareholders explaining the importance of free cash flow, which simply means the amount of money you have coming in and going out each month.
“Why not focus first and foremost, as many do, on earnings, earnings per share or earnings growth? The simple answer is that earnings don’t directly translate into cash flows, and shares are worth only the present value of their future cash flows, not the present value of their future earnings.”
He continued, “Future earnings are a component — but not the only important component — of future cash flow per share. Working capital and capital expenditures are also important, as is future share dilution.”
In terms of retirement planning, cash flow consists of dependable income sources — such as pensions, rental property income, Social Security, stocks and annuity returns — which cover living expenses.
The retirement cash flow strategy is vital, because it helps ensure stability and helps you outpace inflation. The more you generate, the more you can save or invest. A solid understanding of your cash flow can also help prepare for unexpected mishaps, but balancing your cash is key.
You don’t want too much on hand, because you can miss potential investment and growth opportunities, but you need enough to cover bills and unexpected emergencies.
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Diversify Investments
Bezos has made an enormous fortune from Amazon, but that’s not the only company he earns money from. He’s built a diverse portfolio by investing in a slew of other companies, such as real estate platforms, media, education and tech.
The lesson here is not to put all your eggs in one basket when planning for retirement to reduce the risk of loss. If your portfolio is properly diversified, investments that are performing well will balance any doing badly.
Invest for the Long Term
Besides diversifying his investments, another strategy Bezos sticks to is a long-haul approach. He’s held several of his current positions for five to 10 years — companies like Airbnb, Basecamp, Business Insider and Uber — illustrating his long-term investing method.
Though short-term investments can offer fast returns, there are higher risks and bigger brokerage fees, meanwhile inflation and taxes can reduce the return. Long-term investments, however, can provide steady growth and compound interest, which adds up over time and could be a reliable source of income during retirement.
Given Bezos is not only one of the wealthiest people in the world but also a savvy investor, his investment philosophy might provide valuable insights for retirees looking for sound advice and planning.
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This article originally appeared on GOBankingRates.com: 3 Top Money Tips From Jeff Bezos That Can Save Retirees From Financial Disaster
