Menu Close

I wish I’d learnt this Warren Buffett investing strategy earlier

view original post

The best way for me to build wealth over the long term is to spend less than I earn. Well, almost the best way. Because it’s what I do with the savings that really counts, and Warren Buffett could help here.

In my younger days, I always thought finding the best interest rate on offer at a bank was the best option for my savings. Don’t get me wrong, this could still be an appropriate strategy. It’s certainly a ‘safe’ option as this is a guaranteed return, and isn’t subject to price fluctuations when the market is open.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

But a savings account has other risks. For one, inflation today is well above the interest on offer at a bank. This means the real return is actually negative. In other words, my savings would lose purchasing power.

Then there’s ‘opportunity cost’. Simply, this means I’m losing out on potentially higher returns by not investing my savings elsewhere.

Let’s take some inspiration from Warren Buffett to see how I can invest my savings instead.

Warren Buffett’s strategy

Warren Buffett is probably the most famous investor around. He grew Berkshire Hathaway into the behemoth it is today, standing at a market value of about $640bn. Together with his business partner, Charlie Munger, he’s spent decades investing to grow the value of Berkshire Hathaway for shareholders.

I previously wrote about Munger’s influence on Buffett’s investing strategy here. As a quick recap, Munger persuaded Buffett to focus more on quality companies over deep-value businesses selling for less than intrinsic value. A quick turnaround sale could pay off in a big way if the original buy price was right. Buffett often referred to this as ‘cigar-butt investing’ as it was a shorter-term trade.

But there’s another crucial factor to Buffett’s strategy, which again came from Munger’s influence. It’s captured in the following quote: “Our favourite holding period is forever.

In fact, Buffett has spent his lifetime trying to convince people to invest for the long term. This is the key investment strategy that I wish I’d learnt sooner. It works for Berkshire Hathaway, so I’m sure I can use it too.

Thinking back, if instead I hadn’t looked around for the best interest rate on offer at a bank, I had invested in the stock market, I may have been wealthier for it today.

Where should I invest?

The first thing I should have done is use a stocks and shares ISA. There’s a great article on this here. In short, it’s a way to invest without paying any tax on capital gains and income.

But there are many investing options to consider after opening an ISA. I primarily use growth investing, looking for companies that can be much larger in the future. But I also buy high-yielding dividend stocks to increase my passive income.

One final way I could have improved my wealth is to buy an index fund that tracks the stock market. Or I could have simply bought shares of Berkshire Hathaway 10 years ago and earned an annualised return of 14%, letting Buffett do the investing for me.

As long as I invest for the long term, there’s a good (if not guaranteed) chance my returns would beat an interest rate at a bank.

Here are some other great ideas to build wealth…

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies still trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

Dan Appleby has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.