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With almost no savings aged 40, I’d use the Warren Buffett approach to build wealth

Buffett at the BRK AGM

At a certain point in life, a lack of savings can start to feel like a problem when it comes to long-term financial security. However, even with little in the bank, I think it is possible to start increasing one’s wealth. I would try to do that by applying a few investing lessons from billionaire shareholder Warren Buffett.

1. Spend time hunting for quality

From a standing start and with the clock ticking, it can be easy to think that fast action is needed to build an investment portfolio.

But Buffett never rushes his investment decisions. Years can go by without him making a major move, even as money piles up to invest. He sometimes follows a share for years or even decades before deciding to buy it, as was the case when he bought into IBM (a position he no longer holds).

That is because Buffett is looking to make outsized returns by investing not only in good businesses, but in great ones that trade at attractive prices. He thinks such opportunities come around only rarely so wants to keep his powder dry for when they do. That takes time and research.

2. Warren Buffett sticks to what he knows

Most people would not buy a car make they had never heard of, or purchase a house in an area they did not know.

But oddly, some of those same people would stick money into a company they barely understand. The hope of fast profits can lure people into putting their hard-earned cash into shares without really knowing much about them.

That sounds more like gambling than investing. Warren Buffett sticks to his ‘circle of competence’ when he invests. If he does not understand a business he thinks he cannot assess its prospects and whether the valuation is attractive.

I think the same approach makes sense for me as I try to build my wealth by owning shares.

3. Invest for the long term

Some people buy shares hoping to sell them after the next earnings report, positive piece of news or even just the next price swing.

That reflects a view of shares as merely pieces of paper, traded by looking at numbers. Instead, Warren Buffett sees a share as a tiny slice in a company. So he looks at the prospects of, say, Apple or Coca-Cola in the round. He is looking for businesses he thinks are attractive, in which he can buy shares if he likes their price.

That may sound like a semantic point, but actually it cuts to the core of Buffett’s investing style. He wants to accumulate wealth by identifying excellent businesses that are attractively valued. Buying shares in them can hopefully help him ride the coattails of their financial success.

The same long-term investing mindset can help me even though I have a tiny amount to invest compared to someone like Buffett. That is why, like him, I am hunting for companies that I think can do well for years or even decades to come.

The post With almost no savings aged 40, I’d use the Warren Buffett approach to build wealth appeared first on The Motley Fool UK.

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C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Apple. 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.