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I am now 36 years old and have been investing in stocks for a while. But I think even if I started today with no savings, I think I could still build wealth by buying stocks. The key for me would be to follow the investment philosophy of Warren Buffett.
Why am I listening to Buffett?
The mega-successful investor buys mostly US stocks, which since 1965 have had an average return of about 10%. However, his investments since then have earned him an average return of around 20%. Sounds pretty good already, but it gets better.
This is what I mean. If I achieved a 10% return on a £10,000 investment over a 30-year period, the compound interest would have been £174,494. Nothing bad.
But if I take that £10,0000 and give it a 20% return over 30 years, it snowballs into a gigantic £2,373,763. That is more than 13 times the amount of money.
Such returns from stocks are how he became the world’s richest man, which is why his advice is so valuable to anyone who wants to accumulate wealth by owning shares in companies.
how do you invest
“Money is made by investing in good companies for long periods of time.
That’s a quote from Buffett that explains his philosophy. Basically, he invests in some great companies and sticks with them for the long haul. He does it himself, with 75% of the company owned by him. Berkshire HathawayThe portfolio of is made up of only five companies.
One of these is beverage maker. Coca Cola, an action that has had a return of 10.749% in the last 40 years. That’s a 107 times return! This really shows the power of investing in the right company. Anyone who had £10,000 in Coca-Cola along with Warren Buffett in 1983 has seen their stake grow to £1,070,000.
As for me, I would look to build my portfolio with companies in the FTSE 100. British companies are cheap by historical standards right now, so this is a great time to get in.
How Stocks Can Build Wealth
The retirement age when I grow up looks like it will be 68, so that gives me 32 years of compounding. And the average return of the FTSE 100 is 8% since inception.
Let’s say I can save £300 a month. If you were to achieve the average return of 8%, that would add up to a total of £500,639 by the time you were 68. That’s a good number, but is it “wealth”? I’m not sure, but it could offer me financial security or an additional source of income.
But what if you could follow Buffett’s advice and achieve greater performance? At 12% a month, my £300 a month would be £1,156,579 when I’m 68. That’s an incredible amount of money and could give me a sizable additional income in retirement, or even pave the way for early retirement.
Inflation would mean those figures would be worth less in the future. And you could end up with lower or even negative returns.
Still, as a framework for using stocks to achieve real wealth even if you had no savings at 36 or any other age? I really like Buffett’s advice.
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