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If I had no savings at 30, I’d follow the Warren Buffett approach to making a million

A front-view shot of a multi-ethnic family with two children walking down a city street on a cold December night.
Image source: Getty Images

Some of the wisest things that Warren Buffett has said do not appear to relate to the stock market, at least at first.

That is certainly the case with one of my favourite sayings: “Someone’s sitting in the shade today because someone planted a tree a long time ago”. It’s beautiful and true. There is a reason they call him the Sage of Omaha, you know.

Warren Buffett thinks long term

I have always found that notion strangely touching. I picture somebody planting and nurturing a tree, knowing that somebody else will ultimately benefit, possibly long after they have gone. Then I remember that Warren Buffett is talking about investing after all. If I had no savings at 30 and was just about to start buying shares, I would follow his mantra.

The world’s most successful investor has always been an advocate of investing for the long term. Creating a successful portfolio is the same as nurturing just about anything else, including a nice shady tree. It takes time, care, patience, and maybe even a little love.

What it does not mean is looking for easy gains or fast fixes, say, by diving into some get-rich-quick asset class like crypto, or playing daft games with meme stocks. Day traders aren’t planting trees. They’re just tramping about making a lot of noise and doing some damage, too.

Once I had the protection of an emergency pot of cash for a rainy day, I would look to build a portfolio of FTSE 100 shares with a long-term view. I would start by investing in dividend income stocks.

The best dividend stocks tend to be larger blue-chip companies with the resilience to withstand tough times. The FTSE 100 is full of them, and many are offering generous yields of between 5% and 9%.

Shares take time to grow

While I was young and still working, I would reinvest them straight back into my portfolio for future growth — rather like Warren Buffett’s tree planter would water the roots. That will help it grow slowly but steadily over time.

I wouldn’t spend too long staring at my portfolio to see how it performs, just as I wouldn’t spend all day staring at my sapling. I would check its progress from time to time, otherwise I would leave it to grow. Investors who constantly worry over their portfolio are more likely to make rash buy or sell decisions, because events are not moving fast enough.

They are also more prone to panic in tough times. Like that tree, a well-balanced portfolio needs a little air, too.

If I started doing this age 30, I would hope my portfolio has grown enough to throw plenty of shade by the time I reach retirement and start drawing my dividends as income. I would take measured amounts and leave the capital to continue growing. Hopefully, that way, it will continue to benefit the people I love when I’m gone, not just me.

The post If I had no savings at 30, I’d follow the Warren Buffett approach to making a million appeared first on The Motley Fool UK.

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Harvey Jones doesn't hold any of the shares mentioned in this article. 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.

Motley Fool UK 2022