Young mixed-race woman jumping for joy in a park with confetti falling around her
Warren Buffett is among the most successful investors of all time. He’s amassed a fortune worth in excess of $120bn.
I could never hope to amass a fortune that large. However, I can certainly use his teachings to help me build my wealth over time.
We all have very different ideas of what it means to be rich. But for me, it would probably revolve around the notion of earning a passive income.
So maybe I could aim for a portfolio that could deliver double the average UK income in the form of passive income.
If I was starting from nothing, that could also certainly be considered ‘getting rich’. But is it possible? Absolutely, but it wouldn’t happen over night.
Here’s how Buffett can help me achieve it.
The power of compounding
“My wealth has come from a combination of living in America, some lucky genes, and compound interest“, Buffett has said.
And he’s been investing for a long time. In fact, he’s had nearly 70 years of compounding to help his portfolio grow.
But we can all benefit from compound returns because It’s not reserved for the wealthy or financial experts.
By starting early, investing wisely, and staying consistent, anyone can unlock the remarkable potential of compounding just by reinvesting year after year.
Over time, even small contributions can grow into substantial wealth, thanks to the snowball effect of earning returns on both the initial investment and its accumulated earnings.
Don’t lose money
Buffett’s “Rule 1: Never lose money. Rule 2: Never forget Rule 1” reflects his emphasis on capital preservation.
For him, avoiding losses is paramount because recovering from a financial setback demands disproportionately larger gains. For example, if I lose 50%, I’ve got to gain 100% to get back to where I was.
This principle underscores the importance of thorough investment research, risk management, and a focus on the long term. It’s also why we see Buffett looking for a margin of safety on his investments.
He wants to invest in stocks that are undervalued because they may not have far to fall, but they could gain quicker than the index average.
How could I do it?
So what do I need to do? Well, bringing it all together, I need to do my research, use resources to help me make wise investment decisions, and reinvest my returns. But, of course, if I’m starting from nothing, I need to be making regular contributions.
Currently, the average income in the UK is around £30,000. And I’m going to assume it grows at 2% annually. So how much passive income would I need to earn to get double the average UK income?
Well, here’s how I think I can come pretty close to earnings twice the UK’s average income, at least according to my forecast.
The chart below shows wealth accumulation when contributing £250 a month — increasing at 5% annually — reinvesting, and achieving an annualised return of 12%.
Created at thecalculatorsite.com
After 30 years, I’d have £1.32m. And with that invested in stocks paying an 8% dividend yield (which is achievable today but maybe not in 30 years), I’d receive £105,600. That’s not bad.
5 stocks for trying to build wealth after 50
Inflation recently hit 40-year highs… the ‘cost of living crisis’ rumbles on… the prospect of a new Cold War with Russia and China looms large, while the global economy could be teetering on the brink of recession.
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. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.
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. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.
Claim your free copy now
More reading
James Fox 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.
News Related-
Up to 40 Tory MPs ‘set to rebel’ if Sunak’s Rwanda plan doesn’t override ECHR
-
Country diary: A tale of three churches
-
Sunak woos business elite with royal welcome – but they seek certainty
-
Neil Robertson shocked by bad results but has a plan to turn things round
-
Tottenham interested in move to sign “fearless” £20m defender in January
-
Bill payers to stump up cost of £100m water usage campaign
-
Soccer-Venue renamed 'Christine Sinclair Place' for Canada soccer great's final game
-
Phil Taylor makes his pick for 2024 World Darts Championship winner
-
Soccer-Howe aims to boost Newcastle's momentum in PSG clash
-
Hamilton heads for hibernation with a word of warning
-
Carolina Panthers fire head coach Frank Reich after 1-10 start to the season
-
This exercise is critical for golfers. 4 tips to doing it right
-
One in three households with children 'will struggle to afford Christmas'
-
Biden apologised to Palestinian-Americans for questioning Gaza death toll, says report