What I like about US billionaire Warren Buffett is that he isn’t just interested in making money. His philosophy on life is much deeper than that.
We’re talking about a man who said: “Someone’s sitting in the shade today because someone planted a tree a long time ago.”
I can’t think of any other famous investor who would find such a poetic metaphor to highlight the importance of long-term investing.
If I had zero savings today, that quote would be my starting point. At some point, I hope to be sitting in the shade. Next to a nice beach. With no money worries. Nobody is going to plant that tree for me. So I’d better get cracking.
Time to plant a tree
There’s no time like the present, but especially today. Stock markets have been volatile lately, as rising interest rates destroy investor sentiment. However, we are nearing the point where interest rates finally peak. When markets sense that’s going to happen, the animal spirits will hopefully revive.
I’m buying all the shares I can afford today, while valuations are still low and dividend yields are high.
As Warren Buffett puts it: “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”
Well I’m putting out my bucket. I just wish it was bigger.
Obviously, these are tough times. The younger generation has it particularly hard, with high rents, student debt and stagnant wages. Not everybody can afford to invest, and I get that. But many who can, don’t. Their money trickles away and they have nothing to show for it.
Buffett has some advice for them: “Do not save what is left after spending. Instead, spend what is left after saving.”
If I had no savings, I’d try to reset my priorities.
Think far ahead
For UK investors who want to buy individual stocks, I think the FTSE 100 is the best place to start. I’d only take a punt on whizzy growth stocks after I’d built up a balanced portfolio of around a dozen solid blue-chips.
I’d follow this tip from a certain Mr Buffett: “If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.”
Although my preference is 20 years.
I’d also tread carefully around growth stocks that everyone is raving about. Chasing fads and fashions can be costly, as Buffett has pointed out saying: “What the wise do in the beginning, fools do in the end.”
I don’t want to be that fool.
As well as growth, I would want my portfolio to generate a rising passive income. I’ll reinvest all the dividends I receive straight back into portfolio, and only draw them as income after I retire. That way, I’m making money without even thinking about it.
Again, I’m following Buffett who said: “If you don’t find a way to make money while you sleep, you will work until you die.”
Dividend stocks pay me income when I sleep. With luck, they’ll help me build sufficient wealth that I won’t have to work ’til I drop.
