Here’s how I’d follow Warren Buffett’s pre-millennium advice to get rich

Despite his enormous investing success, Warren Buffett urges normal investors like me to do things differently. But the results can still be big.

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.

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.

US investor and business magnate Warren Buffett has been enormously successful. And at 90, he’s one of the richest people in the world because of a long series of great investments.

But he’s worked very hard at it and shows no sign of easing up. He loves the game. In fact, he loves investing and business so much that he’s done little else with his life. And that story reveals itself in his authorised biography, The Snowball. Even now he still enjoys turning up at the office to put in several hours every working day.

Warren Buffett’s advice for ordinary investors (like me)

And that kind of commitment and focus is what it takes to outperform the markets in a really big way. But Warren Buffett said in an interview before the year 2000 that he thought most people shouldn’t bother trying to copy him. Instead, his pre-millennium advice to the ordinary investor like me was to seek diversification in investments and add regular money – perhaps monthly. 

But he went even further and suggested an investment in an index tracker fund would be an excellent way to proceed. And I can see his point. If I dedicate my life to investing in the way he has, there will be no time left over for other careers, interests and pastimes – such as going on holiday!

You see, taking a less-intensive approach to investing and doing it in a passive way can still produce decent returns over time. For example, If I invest £400 per month and manage to achieve an annualised return from the stock market of 7%, I could actually get rich. And 7% is often quoted as a realistic long-term expectation for returns from the general stock market.

Passive returns can be big

Here are what the numbers could look like:  

Years

Total invested (£)

Total returns (£)

Balance (£)

10

60,000

26,009

86,009

20

120,000

135,203

255,203

30

180,000

408,032

588,032

40

240,000

1,002,758

1,242,758

And by increasing my monthly investments each year I could help the final balance to grow even more to keep up with inflation.

As well as benefiting from the diversification a tracker fund provides because it follows many underlying shares, I’d also be keen to diversify between trackers. For example, I’d likely select trackers that follow the FTSE 100 index, the FTSE 250 and America’s S&P 500. Indeed, it would be easy to spread my monthly investments between several funds because the minimum investment thresholds are often as low as about £25.

I think trackers could form a solid base portfolio. But I like investing and I find it to be a fascinating and absorbing activity. So, I’d also aim to improve my annualised returns by doing a mini-Buffett. In other words, I’d make a few select investments in individual company shares after thorough research and I’d monitor those investments carefully.

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.

Kevin Godbold has no position in any share 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

Investing Articles

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »