Warren Buffett is one of the greatest investors of all time. Over the past seven decades, he’s turned $100,000 into a conglomerate worth more than $500bn. Given this track record, there’s a lot we can learn from the billionaire. By following his advice, you may even be able to build a £1m ISA.
With that in mind, here’s some advice from Buffett that could help you meet this enormous savings target.
Buffett’s investing advice
If there’s one thing that’s contributed more to Buffett’s success than anything else over the past few decades, it’s the power of compound interest.
In its purest form, compound interest is the process of your money making money. By making the most of this powerful tool, investors can earn money while they sleep, which will improve your chances of getting rich and building a large financial nest egg.
For example, over the past 35 years, the FTSE 100 has produced an average total return of 8%. Investors who’ve owned members of the index during this time have seen an 8% per annum return on their money, assuming the reinvestment of all dividends. This is the power of compound interest at work.
During this time frame, a £1,000 investment in the FTSE 100 would have grown to be worth just over £16,000. Thanks to the power of compound interest, an investor wouldn’t have to do anything else to earn this return. All they had to do is click ‘buy’ and leave the money to grow.
Buffett realised the power of compound interest a long time ago. He has since relied on this principle to help him grow his wealth.
The best thing about compound interest is you don’t need to do anything for it to work its magic. This might seem easy, but it’s actually quite hard. It would be best if you resisted the temptation to tinker with your investments regularly.
Speaking from experience, I know this isn’t easy. However, it’s essential to focus on the long-term potential for compound interest.
Research shows that the best way to build wealth over the long term is to sit on your investments and let compound interest work its magic. Every time an investor tinkers with their portfolio, it disrupts the process.
That’s why Buffett rarely sells his most substantial investments. He knows that the best way to build wealth is to buy high-quality businesses and sit back. Some of his largest investments have featured in his portfolio for decades.
As such, if you’re looking to build a large financial nest egg, it might be sensible to follow Buffett and take a relaxed approach to portfolio management.
By doing so, compound interest can work its magic and grow your hard-earned funds. That’s the approach that’s helped Buffett turn $100,000 into a $500bn business in 50 years.
The post This Warren Buffett advice could help you build a £1m ISA appeared first on The Motley Fool UK.
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Rupert Hargreaves owns no 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.
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