No savings at 30? I’m using the Warren Buffett method to build wealth

Warren Buffet is one of the most successful investors of all time and can offer important lessons for people trying to build wealth. James Reynolds is using the Warren Buffet method.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Warren Buffett at a Berkshire Hathaway AGM

Image source: The Motley Fool

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Warren Buffett, the billionaire investor, enjoys the ‘game’ of investing. It’s been his life’s work, and he’s still at the head of Berkshire Hathaway at the age of 91.

As someone with no savings before the age of 30, building even a fraction of that wealth can seem like an impossible dream. But by paying attention to his method and employing some of his key virtues, I believe I can learn from Warren Buffett’s example.

Compounding interest

Albert Einstein once said: “Compound interest is the eighth wonder of the world. He who understands it earns it. He who doesn’t, pays it.” 

Compound interest is when the value of an investment grows exponentially over time. For example, if a portfolio of £100 grows by 10% it is now worth £110. If that £110 then grows by a further 10% it is worth £121, then £133.1 and so on.

The stock market grows, on average, around 7% per year. At that rate, it would take 10 years for me to double any money invested. Not unreasonable at all. However, Buffett’s yearly letters to Berkshire Hathaway stockholders reveal that he has earned compounded annual gains of roughly 20% since 1964.

That’s doubling every four years! Annualised returns at that pace explain a lot about why he’s now a multi-billionaire.

Buffett focuses on fundamentals 

So how does Buffett get such high returns for himself and his shareholders?

In his 2021 shareholder letter, Buffett emphasised his focus on selecting high-quality enterprises. These are companies that can increase their profits year after year, have high free cash flow, low debt and a product or service that continues to sell well during bad economic times. It does not mean chasing trends or trying to get in on the new ‘hot’ stock option. Coca-Cola is a perfect example of this and is why it is one of his largest holdings.

So should I just buy what Buffett has? Not necessarily. Buffett takes a long time choosing shares, and even longer waiting to buy them. He tries to buy stocks when ‘great businesses go ‘on sale or trade below their intrinsic value. Then he holds onto his stock as the companies’ earnings multiply. Apple makes up a significant portion of Buffett’s portfolio but has shot up in value since he invested in 2016. There is a good chance will continue to grow, but I don’t want to be chasing trends. Instead, I need to look for companies that have solid fundamentals but haven’t had that explosive growth.

Long-term investing

To take full advantage of compound interest and a growing business, Buffett thinks long term. He only buys a stock if he knows he wants to hold it for years, even decades. To investors like myself, this is an even more important virtue. I don’t have the time or the resources to predict the movements of the stock market. Trying to make a ‘quick buck’ trading is only likely to lose me money.

The best, most consistent way anyone has profited from the stock market has been by investing in great companies and holding for the long term.

All investing has dangers, but without risk, there can be no reward. My strategy for generating wealth at 30, is to save as much as possible every month. Then, like Warren Buffett, carefully select companies for their income growth, stability and unique products, and hold them for years.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James Reynolds 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.

More on Investing Articles

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

Is the S&P 500 going to 10,000 by 2030? This expert thinks so

One stock market strategist sees animal spirits taking hold and driving the S&P 500 index even higher by the end…

Read more »