Warren Buffett once explained how to turn $10,000 into $30 billion as a new investor — here are his 3 steps
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Berkshire Hathaway’s (BRK-B) annual meetings give shareholders the opportunity to pick CEO Warren Buffett’s brain on a wide range of topics.
However, one investor who attended the conference in 1999 cut right to the chase.
“Mr. Buffett, how do I make $30 billion?” he asked.
As always, the Oracle of Omaha conveyed complicated ideas in simple terms. Here are the three crucial rules that helped the 93-year-old accumulate a massive fortune and that could help ordinary investors too.
Buffett’s best advice for investors is to get started as early as possible. He has a simple metaphor to explain his wealth-building strategy.
“We started with a little snowball on top of a very tall hill,” he said. “We started at a very early age in rolling the snowball down, and of course, the nature of compound interest is that it behaves like a snowball.”
The length of Buffett’s career is a key piece of his enormous wealth. He bought his first stock at the age of 11. He’s now 93 years old and still actively investing.
The majority of Buffett’s wealth was accumulated after he turned 65. In 1999, his net worth was just $30 billion. Today, it’s four times greater at over $140 billion, according to Bloomberg.
In other words, one of the keys to Buffett’s long term success was investing early and often.
Read more: Rich, young Americans are ditching stocks — here are the alternative assets they’re banking on instead
Buffett said that if he started investing again today with $10,000, he would focus first on small businesses.
“I probably would be focusing on smaller companies because I would be working with smaller sums and there’s more chance that something is overlooked in that arena,” he said at the shareholder meeting.
In his early days, the billionaire investor focused on companies that would be considered small-caps. He bought a tiny furniture company in Nebraska in 1983 when it was still expanding across state lines. He acquired See’s Candies when it made just $4 million in annual profits in 1972.
These small businesses were overlooked, undervalued and had room to grow, which gave Buffett the chance to buy in early.
This trend continues today. Small-cap stocks were around 30% cheaper than large cap stocks as of the start of the final quarter of 2023, according to an analysis by BNP Paribas. This valuation gap is near a 25-year low, suggesting the potential for small-cap outperformance as market conditions shift, based on a report by Royce Investment Partners.
If small-cap investments sound too much like micro-management, you could instead consider using an automated investment portfolio to take some of the pressure off individual stock picking. You don’t always have to put away large sums to move toward your retirement goals. Ten dollars a week could make a difference – if you’re smart about what to do with your spare change.
When you make a purchase on your credit or debit card, Acorns automatically rounds up the price to the nearest dollar and places the excess — the coins that would wind up in your pocket if you were paying cash — into a smart investment portfolio.
Let’s say you purchase a doughnut for $2.30. Before you’re done licking the sugar off your fingers, Acorns will round the amount to $3.00 and invest the 70-cent difference for you. Look at this math: $2.50 worth of daily round-ups add up to $900 per year — and that’s before your savings earn money in the market.
Plus, if you sign up now, you can get a $20 bonus investment.
Thomas J. Watson Sr., the founder of IBM, once said, “I’m no genius. I’m smart in spots — but I stay around those spots.” That’s the mantra Buffett has applied to his investing too.
Investing is risky, and Buffett has mitigated that risk by sticking to industries he understands. Much of his portfolio is focused on either consumer goods businesses or financial service companies. This disciplined approach helps him manage risk and make confident, long-term decisions.
Ordinary investors can similarly reduce risk by sticking to their circle of competency and avoiding speculation.
If you’re not sure where your strengths lie as an investor, that’s where platforms like Moby can come in. Moby offers expert research and recommendations to help you identify strong, long-term investments backed by advice from former hedge fund analysts.
In four years, and across almost 400 stock picks, their recommendations have beaten the S&P 500 by almost 12% on average. They also offer a 30-day money-back guarantee.
Moby’s team spends hundreds of hours sifting through financial news and data to provide you with stock and crypto reports delivered straight to you. Their research keeps you up-to-the-minute on market shifts, and can help you reduce the guesswork behind choosing stocks and ETFs.
Plus, their reports are easy to understand for beginners, so you can become a smarter investor in just five minutes.
Another path is to work with a single, dedicated financial advisor to find your investment angle — no matter where you are in your financial journey.
A good advisor can help ensure your investment strategy aligns with your personal goals and long-term financial plan.
But with over 321,000 financial advisors in the U.S., according to the Bureau of Labor Statistics, where do you start?
Finding a financial advisor that suits your specific needs and financial goals is simple with Vanguard.
Vanguard’s hybrid advisory system combines advice from professional advisers and automated portfolio management to make sure your investments are working to achieve your financial goals.
With a minimum portfolio size of $50,000, this service is best for clients who already have a nest egg built and would like to try to grow their wealth with a variety of different investments. All you have to do is set up a consultation with a Vanguard advisor, and they will help you set a tailored plan and stick to it.
After all, smart investing starts with self-awareness and succeeds with the right guidance.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.