If you have no savings at 40, then it’s time to wake up and start listening to Warren Buffett. The world’s greatest investor knows better than anybody how to generate long-term wealth from the stock market, and that’s your best chance of generating enough money to retire at a time of your choosing.
It’s all too easy to hit 40 without any retirement savings. In your 20s and 30s, retirement seems a long way off. Also, you’ve more immediate commitments, such as buying a car, or setting up home. You can’t afford to leave it any longer though. Retirement will come round swiftly enough. It’s time to heed Buffett’s wise words on the subject.
You may think this is the wrong time to invest in the stock market, given current volatility. You’re wrong. Stock markets are always volatile. It’s the price you pay for the higher returns they generate in the longer run. Overall, shares will beat almost every other asset class, but they’ll also give you a shock from time to time. As Warren Buffett said: “Though markets are generally rational, they occasionally do crazy things.”
Time to start saving at 40
You can turn those crazy moments to your advantage. Warren Buffett has always sought to purchase high-quality businesses when they trade at low prices. This year’s stock market crash has, in fact, been a great buying opportunity.
At 40, you still have 25-30 years before retirement. That’s long enough, so don’t be short-termist. Warren Buffett said don’t target companies that are performing well right now, but choose those with staying power. Or, as he put it: “Nobody buys a farm based on whether they think it’s going to rain next year. They buy it because they think it’s a good investment over 10 or 20 years.”
Don’t race around snapping up all sorts of stocks that catch your eye. Warren Buffett suggests a simpler, superior strategy: “An investor should act as though he had a lifetime decision card with just twenty punches on it.” By limiting what you buy (and sell) you will also save on trading charges, which eat away at your returns.
Warren Buffett likes passive funds
If you aren’t comfortable buying individual stocks and shares, that’s fine. Warren Buffett says never invest in anything you don’t understand. He also came up with this little gem: “We are all duds at one thing or another. For most of us, the list is long. The important point to recognise is that if you are Bobby Fischer, you must play only chess for money.”
You can still benefit from stock market growth though, by investing in cheap index tracking funds, such as iShares Core FTSE 100 ETF or the SPDR FTSE All-Share ETF. That’s the simplest way to get rich and, if you’re really lucky, retire early.
You really can do it, even if you’ve no savings at 40. Listening to Warren Buffett can help you along the way.
