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Last week on Twitter I saw a tweet from Ben Carlson who writes at A Wealth of Common Sense. He posted an image of a conversation between Warren Buffett and Amazon’s Jeff Bezos (originally referenced in Parker Thompson’s article).
For such a short snippet of a conversation, it stopped me in my tracks. I’ve been thinking about it all week.
We live in the era of instant gratification. In this day and age, convenience is everything.It’s said that patience is a virtue, but it’s a quality that’s fading fast in our generation.
We hear about hot new stock tips, multi-level marketing schemes, how to make thousands of dollars from your couch, alternative investments like bitcoin, and many other get rich quick schemes.
However, when it comes to building true wealth, there’s no short cut. The investors that are ok with building wealth slowly are the ones that come out ahead in the end.
Building Wealth Over Time
Warren Buffett is a huge proponent of index funds: “My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors — whether pension funds, institutions, or individuals — who employ high-fee managers.”
He didn’t win the lottery or make his fortune with cryptocurrency. He has built the majority of his wealth by buying stocks from high quality companies and holding them for a very, very long time. In fact, at the age of 56 he was worth $1.4 billion. From age 56 to 66, his wealth grew to $17 billion. From age 66 to age 83, his fortune grew to $58.5 billion! The vast majority of his wealth was acquired later in life, as the compound interest on his investments exploded in his favor.
This is also why I’m a big fan of keeping our investing strategy so simple. We throw money into our 401k’s and Roth IRA’s, all in index funds. We don’t pay attention to the highs and lows of the market, and we don’t try to discover the popular get rich quick scheme of the moment. Eventually we’ll probably branch out into real estate and continue to work on building passive income streams on our road to financial independence.
The most important qualities of an investor are the ability to set a plan and stick to it, having patience, taking your emotions out of investing, and limiting investment fees. The rest will take care of itself.
We’re going with Warren Buffett’s method – we’re some of the few who are ok with getting rich slow.
Related Reading: Widening the Moat
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