I know someone who has no savings and no investments. None. He also has no money put aside for his retirement. But I think that he can take advantage of the secret behind Warren Buffett’s success.
Now, in fairness to him, he was only born last week. He’s my son and his name’s Alistair.
Time’s on his side
Alistair is one of the youngest people in the world. That means he has longer than anyone else to invest, accumulate assets, and build a portfolio.
The real secret to Warren Buffett’s success is investing for as long as possible. By making his money work for him for over 80 years, Buffett has been able to harness the power of compound interest.
Suppose that I invest £1,000 today and achieve a 7% average annual return? In year 10, my investment would return £134. That’s nothing to get too excited about, but the returns grow quickly as time goes on.
In year 25, my investment will grow by £380. In year 50 the increase will be £2,153. And after 80 years of investing, a 7% compound return will be growing by over £17,000.
Time has been a huge reason for Buffett’s investing success. The Berkshire Hathaway CEO famously acquired 99% of his wealth after his 50th birthday.
Buffett, who’s now 91, has had plenty of time to accumulate assets. But living a long time isn’t the only way to have a long investing career.
The other way to invest for a long time is by starting early. And I plan to set up my son’s Junior ISA and start investing for him right now so that he can compound his wealth for as long as possible.
Where to begin?
Of course, the other reason for Buffett’s impressive investing record is his skill when it comes to buying quality businesses at affordable prices. And that’s a particular challenge in the case of looking to buy some shares for my boy.
Having a long time horizon is a great thing. But it also means that I have to try and see a long way into the future when I’m buying stocks for Alistair.
There are some obvious candidates. For example, I think Disney with its unmatched content library will stay relevant for decades to come.
After that, it becomes less obvious. But I’m looking forward to thinking about which investments I can make now to get my little one into the best possible financial shape for the years ahead.
I’m also looking forward to helping him learn how to think about investing, understand how markets work, and figure out which businesses he’d like to own. But all that’s still to come. For now, I’m going to start him off with some investments and he can decide what to do with them further down the road.
I doubt that the investments I make for Alistair today will make him as rich as Warren Buffett. But by starting early, I’m confident that I’m giving him the best chance of benefiting from the force that has driven so much of Buffett’s success.