Starting from scratch at 40? I’d use Warren Buffett’s golden rule to build wealth

Warren Buffett’s golden rule could be the key that unlocks tremendous wealth for long-term investors, even when starting later in life.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Fans of Warren Buffett taking his photo

Image source: The Motley Fool

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

When kicking off an investment journey from scratch at 40, Warren Buffett is among a few investors to take inspiration from. The billionaire has become a master of outperforming the stock market.

What’s more, he’s been quite generous in sharing the tactics and methods behind his success. And for investors with a shorter time horizon before retirement, following in his footsteps could be the key to a more comfortable lifestyle.

Among his various tips and tricks, lies Buffett’s golden rule. And it’s pretty straight forward: “Never lose money”. This seems pretty obvious. But it’s also near impossible to follow. After all, there are a lot of forces at play operating within the financial markets, most of which can be incredibly difficult to predict.

Should you invest £1,000 in Amazon right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Amazon made the list?

See the 6 stocks

The pandemic’s a perfect example of an unforeseen external threat. Even Buffett got caught out by global lockdowns, and it’s not the first time he’s made mistakes. So how exactly do investors follow this rule?

Never lose money

The purpose of the golden rule is to instil a mindset of ownership. Instead of buying and selling shares frequently, Buffett likes to buy and hold for decades. And if he’s going to own a business for that long, it better be a good one.

Don’t forget, in the long term, stock prices are ultimately driven by earnings rather than mood and momentum. So in order not to lose money, the company needs to be of the highest quality, have sustainable competitive advantages, and trade at a fair price.

A perfect example of this from Buffett’s own portfolio is Coca-Cola (NYSE:KO). The soft drinks enterprise doesn’t need much of an introduction. After all, an estimated 1.9 billion servings of Coca-Cola brands are sold every day. But back in 1988, when Buffett first invested, it had yet to reach such a dominant position within the beverage market.

Buffett spotted early on the rising popularity of the Coca-Cola brand from something as simple as counting bottle caps at petrol stations. Apart from proving the quality of the product, its popularity also granted the firm some notable pricing power despite a large amount of competition.

Today, Coca-Cola continues to be one of the largest positions in the Berkshire Hathaway portfolio. And Buffett has said numerous times he never intends to sell any shares.

Finding the next Coca-Cola

Determining which companies today will evolve into industry titans 30 years from now is no easy feat. After all, the economic landscape in 2024 is vastly different compared to 1988. And firms that seemed like sure winners in the past have failed to keep up as expected.

Take IBM as an example. As a previous industry titan, the technology giant ended up getting left behind as players like Microsoft and Apple stole its crown. So how does Buffett spot such opportunities early on?

There is an element of luck in the process. However, the probability of identifying winners can be drastically increased by hunting for competitive advantages.

Apple, much like Coca-Cola, focused on quality and branding to improve its pricing power. Microsoft created a powerful network effect with its Office software suite. And there are plenty of other winning traits to look out for such as optimum efficiency as well as unique access to specific resources.

AI Revolution Awaits: Uncover Top Stock Picks for Massive Potential Gains!

Buckle up because we're about to dive headfirst into the electrifying world of AI.

Imagine this: you make a single savvy investment in some cutting-edge technology, then kick back and watch as it revolutionises entire industries and potentially even lines your pockets.

If the mere thought of riding this AI wave excites you and the prospect of massive potential returns gets your pulse racing, then you’ve got to check out this Motley Fool Share Advisor report – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And here’s the kicker – we’re giving you an exclusive peek at ONE of these top AI stock picks, absolutely free! How’s that for a bit of brilliance?

Get your free AI stock pick

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.

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Apple and Microsoft. Views expressed on the companies mentioned 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.

More on Investing Articles

Investing Articles

At a 52-week low but forecast to rise 73%! Is this growth share the FTSE’s top recovery play? 

This FTSE 100 growth share has taken an absolute beating over the past two years but Harvey Jones says the…

Read more »

Investing Articles

This FTSE 250 share offers a juicy 9.8% yield. Will it last?

This well-known FTSE 250 share has a percentage dividend yield approaching double digits. Should Christopher Ruane add the income share…

Read more »

Investing Articles

Is a £333,000 portfolio enough to retire and live off passive income?

A third of a million pounds can generate a serious amount of passive income, but relying on this sum alone…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing For Beginners

Why FTSE 100 investors should pay attention to ‘Liberation Day’

Jon Smith explains why the upcoming tariff announcement from across the pond could have an impact on the FTSE 100,…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

Here’s why Nvidia stock fell 13% in March

The Nvidia stock price rise was looking unstoppable. Should investors now be wondering if the same might be true of…

Read more »

US Stock

It’s ISA deadline week! Here’s my 3-step game plan

Jon Smith tries to calm the hype around the last minute ISA rush to buy stocks and explains why he's…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

£10,000 invested in BAE Systems shares at Christmas is now worth…

BAE Systems shares have been surging in the FTSE 100 in 2025, driven higher by the wavering US commitment to…

Read more »

Investing Articles

Up 19% in 2 weeks, can the Tesla share price rebound further?

Tesla's first-quarter delivery numbers came out today. Will they help persuade our writer to invest his money at the current…

Read more »