As I near 50 without enough savings, what would Warren Buffett say to 17-year-old me?

As he approaches his 50s with insufficient savings, our writer considers what Warren Buffett would have told him 33 years ago.

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Warren Buffett bought his first stock at the age of 11. Unfortunately, I didn’t start investing until later in life. But, what difference would it have made if I’d followed the advice of the great American investor, when I was much younger?

Words of wisdom

I got my first job when I was 17. I’m approaching 50 now, which means I could have been investing for 33 years.

That’s the first piece of advice, start early.

Second, take a long-term approach.

Many of Buffett’s quotes emphasise the need to invest for the long term. “If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes“, he once said.

Buffett’s third piece of advice is to invest in a tracker fund. He believes that over an extended period, this will out-perform the returns that a private investor will achieve.

As the name suggests, this investment product will track a particular index or group of stocks. This has the benefit of providing a diversified portfolio, without having to own all of the shares individually.

Some investors don’t like these funds as they enjoy picking stocks, and get a thrill from buying and selling. But, if you don’t want to be actively involved in the day-to-day management of your investments, then a tracker fund is ideal.

As an American, Buffett believes that the S&P 500 is the best index to follow. On this side of the Atlantic, the equivalent would be the FTSE 100.

Let’s crunch the numbers …

A simple example can help illustrate why Buffett is right.

My first job, working every weekend in the local DIY store, paid £1.50 per hour. Even on my modest wage, I’m sure I could have found £25 to invest each month.

According to IG, the average annual growth rate of the FTSE 100 from 1984 to 2019, was 5.8%.

Buffett also believes in re-investing any dividends received. This is an effective way of supplementing a regular investment. A reasonable estimate of the historical dividend yield, for the UK’s largest listed companies, would be 3.5%.

Based on these assumptions, after 33 years, I’d now have nearly £66,000. That’s not bad for a cash outlay of £11,400!

Timescale (years)Value of investment (£)
1329
2688
31,082
41,513
51,986
105,112
1510,035
2017,786
2529,989
3049,201
3365,686

Although this ignores the impact of inflation, broker’s fees, and stamp duty, it’s a powerful illustration of the benefit that could be gained from sensible long-term retirement planning.

But, Warren Buffett is 92 and still investing. If my table was extended for another 42 years, it would show a closing value of over £665k!

Lesson learned

My example shows the power of compounding. By investing small amounts over a long period and re-investing the dividends received, it’s possible to build significant wealth.

Of course, there are no guarantees. The past is not necessarily a good guide to the future.

But, I wish I’d spent less time reading Shakespeare when I was studying for my A-Level in English Literature and more time studying Buffett.

Perhaps, its time to put the teachings of the American investor on the school curriculum?

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Views expressed 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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