No Savings at 30? Warren Buffett’s Method Could Help You Get Rich

Here’s how you can become your own Warren Buffett!!

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You are not alone if you are late to investing. Warren Buffett started investing at 10 and regrets starting late. But not everybody is like him. It’s creditable if you have turned serious towards money management now. So, if you are in your 30s, you still have nearly three good decades to invest.

Focus on the long term

The Oracle of Omaha currently sits on a net worth of US$97 billion. Note that 72% of the wealth he accumulated came after his 65th birthday. So, what matters more is how long you remain invested, irrespective of market conditions. Apart from his classic stock picking, compounding has done a crucial job in creating such a reserve.

In bear markets, quality stocks often fall below their fair values. So, it does not make sense to get out of markets due to fear when stocks turn lower. Instead, discerned investors turn more aggressive and deploy their long-held cash in such markets.

Warren Buffett spends most of his time studying businesses and deep diving into their financials. That could be exhausting for a beginner investor. Of all the investing tips Buffett has advised so far, I think the most important is to invest only in businesses that you understand and remain invested in them for the longer term.

Invest in businesses

We come across many brands and products every day that we know could last in the long term. That could be due to limited competition from peers, their irreplaceable market share, or it could be due to changing market conditions. If you find such companies that could continue growing their profits for the next several years, you are already ahead of many peer investors.   

Consider Canada’s biggest telecom company BCE (TSX:BCE)(NYSE:BCE). It serves more than 10 million subscribers in the country. Telecom companies like BCE operate in a regulated environment and thus are relatively stable. Be it a recession or an economic boom, BCE has grown steadily for years.

Its stable financials allow regularly growing dividends for shareholders. So, BCE currently yields 6.4%, some of the largest among Canadian bigwigs. Since the financial meltdown in 2008, BCE stock has returned 12% compounded annually, which is higher than TSX stocks at large.

If you’d invest $1,000 per month in BCE stock and assume it returns 12% annually, you will generate a reserve of a million dollars at the end of 20 years. Now, it’s imprudent to assume the stock will repeat its historical performance in the future as well. But the calculation indeed shows the power of compounding and disciplined investing.

Index funds

Moreover, if you don’t want to pick stocks, Warren Buffett recommends investing in index funds. Index funds are a basket of stocks that give coverage to the entire market. Instead of picking individual names, index funds give a unified, diversified representation. Index funds are typically low cost and create decent wealth over time.

If you want to bet on Canada’s top stocks, the fund iShares S&P/TSX 60 Index ETF has exposure to the 60 biggest Canadian names. The key benefit of index funds is investors’ stock-specific risk gets reduced substantially.

It’s irrational to expect the highest returns from your stocks all the time. If you stay invested in quality names through multiple business cycles, the returns will be higher, and the nest egg will be bigger.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Fool contributor Vineet Kulkarni has no position in any of the stocks mentioned.

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