A lot of people reach a point in life where their savings fall short of what they would like to have. However, even at 30, 40, or 50 it is still possible to start building wealth by getting into good investment habits.
I would draw inspiration from hugely successful investors like Warren Buffett in doing that.
Get rich slow
One key lesson from Buffett’s long career is that time can be the friend of the patient investor.
Some people think of the stock market as a get-rich-quick scheme. But long-term investment in high-quality companies is not a sudden fix for personal finances.
Buffett has bought shares in major businesses like American Express, then held onto them for decades hoping that over time their business quality will lead to share price growth.
Dividend income
Share price growth is not the only way an investor can make money from the stock market however. Dividends are also an important source of regular income for many investors.
Buffett receives billions of dollars a year in dividends. Rather than withdraw them from his business (for example by paying his own shareholders a dividend), he leaves them inside to fund more growth.
As a private shareholder, I can do a similar thing. It is called compounding.
Compounding is reinvesting dividends, so that in turn they also start to earn dividends. Over time, compounding can be a significant source of income.
Focus on quality
Another hallmark of Buffett’s approach to investing is his relentless focus on quality. He sticks to proven companies with business models he understands. He also looks for some sort of competitive advantage that can help a company make profits.
Interestingly, many such shares are well-known and have been around for decades. The ‘Sage of Omaha’ is not trying to uncover a business few investors have yet discovered, hoping to beat them to it. Rather, he is happy to invest in large, well-known businesses hiding in plain sight.
But one thing he does focus on is cost. Even a great business can make a poor investment at the wrong price. So Buffett tries to buy great businesses – at a fair price.
Getting started
Having no savings and not knowing where to start, it can be a bit daunting knowing how to begin.
Buffett started his investment portfolio as a schoolboy, saving some money from a paper round and buying a few shares.
As an adult, I think a similar approach can work well. I would start small, while I learnt about the stock market and share valuation. I would also save money regularly that I could put into my investment portfolio to help me grow it over time.
