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Warren Buffett would never make this mistake. To get rich and retire early, neither should you

Harvey Jones
·3-min read
close-up photo of investor Warren Buffett
close-up photo of investor Warren Buffett

If you want to get rich and retire early by investing in UK shares, you have to think long term. You should be investing across your working life, 40 years or more, so don’t waste your time racing around trying to bag short-term profits. You have to play the long game.

Too many investors take a short-term approach instead, and worryingly, their numbers are growing. New research shows that 30% of the shares UK investors sold last year were held for less than two years. That is up from 18% the year before, according to figures from Bowmore Wealth Group. That’s no way to get rich and retire early.

At The Motley Fool, we encourage investors to invest for the long term. We are in good company too. The world’s greatest investor, US billionaire Warren Buffett, famously said: “Our favourite holding period is forever.” You may not always manage that, but it still makes a lot more sense than holding for a year or two.

It takes time to get rich and retire early

As Bowmore points out, if you trade too frequently, you drive up your trading costs. While your online platform may charge less than £10 a pop, those charges add up if you keep paying them. Remember, they come out of your portfolio, reducing future growth.

Buying and selling too often suggests that investors are chasing short-term gains. They are making the mistake of treating the stock market as a get-rich-quick machine, which it isn’t. The way to generate enough wealth to retire early is slowly, by building up your wealth, year after year. I’m sorry, but two years is not enough.

A large part of your return from investing in FTSE 100 shares will come from reinvesting your dividends for growth. By pumping those payouts back into your portfolio, year after year, you will steadily pick up more stock and build your wealth, helping you retire early.

Short-term investors typically try to make a quick capital gain, then move on to the next big thing they’ve just heard about. That’s not a good way to get rich and retire early, because you can’t rely on picking stock market winners again and again. The law of averages is against you. Even the world’s best investors can’t do it.

Listen and learn from Warren Buffett

Overactive investors also risk tempting to time the market in their bid to retire early, which is a mug’s game. Warren Buffett would never do that. As he has said: “I never have an opinion about the market because it wouldn’t be any good and it might interfere with the opinions we have that are good.” Your opinion about the market isn’t any good either, so ignore it. Do what Buffett does, look for stocks with a strong long-term future. “If you’re right about the businesses, you’ll end up doing fine,” he says.

Nobody can second-guess where share prices will go next. If you want to get rich and retire early, the best thing you can do is build a balanced portfolio of shares. Then aim to hold for the long term, while forgetting about the short term altogether.

The post Warren Buffett would never make this mistake. To get rich and retire early, neither should you appeared first on The Motley Fool UK.

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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 2020