Forget The National Lottery! Investing like Warren Buffett could be a better way to get rich

Following Warren Buffett’s lead could increase your chances of retiring rich, compared to the National Lottery.

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.

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.

While winning millions on The National Lottery is an enticing prospect, the reality is that most people will not experience that result. The odds of winning The National Lottery are 1 in 45m, which is clearly exceptionally low.

As such, it may be prudent to instead focus on another means of building a nest egg for retirement. One investor who has been able to successfully achieve that many times over is Warren Buffett. He is one of the richest people in the world, with his relatively easy strategy simple for anyone to follow. As a result, it could be worthwhile adopting, since it has the potential to increase an individual’s net worth throughout their lifetime.

Prudence

Perhaps the most surprising aspect of Buffett’s success is that it has built on simple techniques which anyone can implement. One of these is his approach to spending. Despite having amassed a fortune during his lifetime, the ‘Sage of Omaha’ still lives in the same house which he bought decades ago. He also drives a modest car and seeks to save money wherever possible.

One example of Buffett’s continued focus on saving money occurred when he took Microsoft co-founder Bill Gates to lunch at McDonald’s. Buffett offered to pay for Gates’ lunch, and proceeded to use coupons to do so. This attitude to saving money is clearly part of the fabric of Buffett’s character and any individual can seek to match this through only spending what they need to on a variety of items.

Investing

With the money that has been saved through prudent spending habits, it’s possible for an individual to invest to a greater extent in the stock market. While other assets, such as property, may hold appeal for some individuals, Buffett has largely focused on the stock market when it comes to generating wealth.

Given the performance of shares in previous years, it’s not difficult to see why Buffett has focused on the stock market. The S&P 500 has delivered an annualised total return of around 7% during the last two decades. The FTSE 250, meanwhile, has recorded an annualised total return of around 9% in the same time period. With online sharedealing making the stock market accessible to a greater range of investors, it is possible for almost anyone to benefit from the growth opportunity which the stock market offers.

Reinvestment

While it may be tempting to spend the profits earned on investments in shares, or the dividends they provide, Buffett has always reinvested his returns. Doing so may not make a significant difference to an individual’s net worth in the short run. But over the long run, the impact of compounding can act as a major catalyst on portfolio returns.

Clearly, Buffett has benefitted from shrewd stock selection over the years. But the foundation of his success has been a prudent attitude to spending, investing continuously in the stock market, and then reinvesting his profits. Following this approach, rather than hoping to win the lottery, could be a better means of retiring with a sizeable nest egg.

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.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK owns shares of 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

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »