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No savings? I’d use these 4 Warren Buffett tips to build significant wealth

Story by James Beard

According to Forbes, Warren Buffett is the fourth-richest person on the planet, with an estimated fortune of $121bn. Unlike the three ahead of him — Messrs Musk,Bezos , and Ellison — he’s built his wealth primarily from investing.

1. Start early

The first thing I’d have to do is begin investing as early as possible. Buffett bought his first stock when he was 11. He’s still investing 82 years later.

The longer the investment horizon, the more time there is for wealth to grow. And delaying a few years can make a big difference.

The table below shows how much £100 invested today could be worth over different periods. The figures assume an annual growth rate of 7.4% — the average yearly return (with dividends reinvested) of the FTSE 100, from 1984 to 2022.

2. Reinvest those dividends

By withdrawing dividends, the FTSE 100 would have delivered growth of ‘only’ 5.3%. With this lower rate, £10 would have been worth £789 after 40 years — over 50% less.

This demonstrates the power of compounding, which has been described as the eighth wonder of the word.

Berkshire Hathaway, Buffett’s own investment company, doesn’t pay dividends. Instead, it reinvests the cash it saves by buying more shares.

This has helped its stock achieve a compound annual growth rate of 19.8%, since 1964. A sum of £1 invested then, would now be worth over £3.7m

That’s why — as tempting as it might be to spend dividends on a one-off treat — I always reinvest them.

3. Don’t put all your eggs in one basket

Most investors emphasise the advantages of diversification — spreading risk across a number of stocks.

However, Buffett once said: “A lot of great fortunes in the world have been made by owning a single wonderful business. If you understand the business, you don’t need to own very many of them“.

Some have interpreted this as meaning that he doesn’t believe in owning lots of individual shares.

In 1993, the billionaire said the “know-nothing” investor is likely to out-perform the average fund manager by investing in a tracker fund

These are a great way of spreading risk across many companies through the ownership of just one investment.

From 1964-2022, a fund tracking the S&P 500 would have returned 24,708%.

Of course, there’s no guarantee that history will be repeated.

4. Be patient

Finally, Buffett is quoted as saying: “It is not necessary to do extraordinary things to get extraordinary results“.

In my view, too many people get caught up trying to find the next ‘big thing’. Remember, slow and steady sometimes wins the race.

Investing small — and often — can be effective. A sum of £50 a month, earning a return of 5%, will grow to nearly £30,000 after 25 years.

I don’t think I’ll ever be a billionaire, but, in my opinion, it’s never too late to follow in the footsteps of Warren Buffett and start building wealth by investing in stocks and shares.

I’m considering selling Bluefield Solar as they couldn’t organise/be bothered to tell investors when they would receive their dividend.

If this is the ethos of the company it’s better to sell, when in doubt get out.

Most probably going to re-invest in the following

A slightly lower total dividend yield but safer dividends for the long term with a chance for capital gains when interest rates start to fall.

I may be able to sell one of the Trusts later and stag Nat West shares depending on the discount offered to the public.

That’s the P of the plan.

BSIF leaves the watch list on their inability to tell shareholders on which day they would receive their dividend.

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I plan to retire early with the passive income I’m making today.

Story by Charlie Keough

Passive income is an investor’s dream. I can buy dividend shares, create extra cash outside of my main source of income, and do very little work to achieve it.

That may seem too good to be true. But it’s not. I’m already doing it. Most of the shares I own provide a dividend. I’m sure lots of my future investments will too.

A recent report from the Pensions and Lifetime Savings Association stated that a single person would need £14,400 a year for a minimum income in retirement. For a comfortable retirement, that figure rises to £43,100.

By relying on passive income, I plan to retire early. Here’s how I’m setting out to achieve it.

Targeting the UK
Firstly, I’m buying UK shares. I largely target either the FTSE 100 or FTSE 250. The reason for this is because they offer meaty yields. I also think these companies look undervalued at present.
I can see why investors have fallen out of love with UK shares. In the last decade, they’ve failed to deliver. However, I think now they look too cheap to ignore. In the years to come, I’m also expecting fast growth in the UK economy. Many have it placed to be the best-performing in Europe in the next 10-15 years.

Taking my time
I’m also utilising the power of time. The longer I have my money tied up in the stock market, the better chance I have of building a nest egg that’ll allow me to retire earlier.

By leaving my money invested for longer, and by reinvesting my dividends, I can further benefit from compounding. This means that I’ll earn interest on my investments as well as the extra money I make, which will also help me grow my pot faster. When the day comes, I can then draw money out as a salary.

How I’m going about it
But what sort of companies should I own? Well, ones such as Legal & General (LSE: LGEN). The insurance giant has been a mainstay in my portfolio. So far, I’ve generated an 11.1% return. However, I’m more attracted by the extra cash I can make on the side.

The stock yields an impressive 8%. What’s more, it has bumped its dividend for the last 9 out of 10 years.

As part of its latest scheme, which finishes this year, it’s set to return up to nearly £6bn to shareholders via dividends. Of course, I must note here that dividends are never guaranteed.

The stock has endured volatility in the last 18 months or so. The challenging macroeconomic environment has placed pressure on the business. As such, it has seen the total amount of assets it has under management drop. As the cost-of-living crisis ensues, this may remain a problem.

However, I plan to own Legal & General for decades. Therefore, short-term issues such as these aren’t a big deal to me. Taking into consideration factors such as ageing demographic, I think the business is in a strong position to grow in the years ahead.

At its current price, I think it’s a steal. The meaty yield it provides is a bonus too. It’s stocks like Legal & General that’ll help me give up work as early as possible.

VPC Specialty Lending Investments PLC

(the “Company”)

MONTHLY NET ASSET VALUE PER SHARE

Net Asset Value

The Company is pleased to provide its monthly net asset value per share (“NAV”) update.

As at 31 January 2024, the unaudited estimated NAV (Cum Income) per Ordinary Share (ISIN GB00BVG6X439) was 83.18 pence.

This NAV has been calculated by CITCO Fund Administration (Cayman Islands) Limited

I’ve sold the portfolio shares in Foresight Solar for a profit of

£66 and a total profit for the blog of £343.00.

The intention is to switch into PHP property where the dividend

is as ‘safe’ as u can get in the market.

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Compound dividends now for the future.
Not only does Buffett own a lot of shares, his company Berkshire Hathaway owns stakes in a wide variety of businesses. Berkshire throws off a lot of spare cash each year, yet it does not pay a dividend. Why?

Buffett prefers to reinvest the money in building Berkshire, for example by buying more businesses’ shares.

Berkshire Hathaway’s Warren Buffett Offers Advice to Investors: Patience and Long-Term Gains Over Pundit Predictions

As a small private investor, I can do the same thing to try and build my passive income streams. Rather than taking out dividends as cash, I can simply reinvest them in more shares.

In the short term, that means I would not see the dividends hitting my bank account as cash. Over the longer term though, it could enable me to build my share portfolio even if I did not put in any more money myself. That could hopefully enable me to earn more passive income in future.

Admit mistakes
Buffett has made some great investing decisions. But he has also made ones that turned to be very expensive mistakes. An example was the Tesco stake he built then sold at a large loss around a decade ago.

Sometimes, when owning a share that has generated substantial passive income in the past, it can be difficult to recognise that the business is changing and is unlikely to be as lucrative in future. But dividends are never guaranteed and past performance is not necessarily an indication of what will come in future.

£££££££££££

Rule 2 of 2.

If a Trust drastically alters its dividend policy it must be sold even at a loss.

a. The portfolio invests only in Investment Trusts as most Trusts have a reserve of cash to pay dividends in dire times.

b. There are plenty of Trusts paying above long term average yields, one percent compounded makes a huge difference to your final ‘pension’.

c. As in the example below, say DS Smith stops paying a dividend, it will make very difference to the Trust, unlike if u held the share. Also there is a chance of a takeover bid, many a mickle makes a muckle.

d. Trusts often trade at a discount to NAV, giving the patient an opportunity to sell some shares at a profit and then re-invest that profit into other Trusts to earn more dividends. The Snowball effect.

Abdrn Equity Fund

KEY INFORMATION

Here’s how I’d aim to start earning £100 in weekly passive income

Motley Fool

Story by Christopher Ruane

Passive income is as simple an idea as it sounds: earning money without working for it. But while the idea may be simple, the reality can be more complicated. A lot of people put time into plans that seem anything but passive to me.

By contrast, my approach of earning dividend income by investing in shares involves very little time commitment on my part. Here is a description of how I could use such a plan to target a weekly passive income of £100.

Buying dividend shares
Not all shares pay dividends, even if they have done so in the past. So when building a portfolio with the objective of passive income, I focus on the long-term cash generation potential I think a business has.

For example, does it have some unique advantage in a field likely to experience ongoing high customer demand? Could that be turned into profits that can fund dividends, or might they need to be used for other purposes, such as paying down debt?
An example of a share I own for its passive income potential is financial services company Legal & General. I expect demand for financial services to remain high in the long term. With a large customer base and strong brand, I think Legal & General has a competitive advantage within that field.

At the moment, its dividend yield is 9%. That means that for every £100 I invest in Legal & General shares today, I will hopefully earn £9 in dividends annually.

I say ‘hopefully’ because dividends are never guaranteed. So although I happily own shares in Legal & General, they form only one small part of a portfolio diversified across a range of companies and industries.

Aiming for a target
Still, although dividends are not guaranteed, I use the average prospective yield of my portfolio to predict my passive income.

If I wanted to target £100 a week (£5,200 annually) then, if I earn an average yield of 5%, I would need to invest £104,000 to hit my target. If I managed an average yield of 8%, by contrast I could hopefully hit my target by investing £65,000.

But I would not invest on the basis of yield alone. Instead, I always look at what I think are a company’s long-term financial prospects and its valuation. Only then do I consider the yield.

Step by step
But many people do not have a spare £65,000 or more sitting around. Even starting with nothing, I could still work towards my passive income objectives. I would start by setting up regular payments suitable for my own financial circumstances into a share-dealing account, or Stocks and Shares ISA.

After that, I would use the money to buy more shares over time and build up my portfolio. Although doing that could take me years to reach my £100 weekly passive income target, I would hopefully earn dividends along the way.