Warren Buffett is rightfully regarded as one of the world's greatest investors. With a fortune of greater than US$100 billion, it's not hard to see why this is the case.
And while the Oracle of Omaha's wealth is well-known, what is less known is that 99% of his wealth has been generated after he turned 50 years old.
This is arguably a sign that it is never too late for wealth generation.
But how can we follow in Buffett's footsteps to grow our own wealth? Let's find out.
Compounding
I find myself talking about the power of compounding quite often. But there's a very good reason for this.
Compounding is one of the greatest tools that an investor has at their disposal. It helps you supercharge your returns and grow your wealth quicker.
To take full advantage of compounding, investors ought to make regular investments in high-quality ASX shares and hold onto them for as long as they can.
For example, if we start from zero, but contribute $500 a month, and achieve a 9.6% annualised return (the 30-year average for ASX shares), while reinvesting any dividends, after 10 years we'd have just under $100,000.
If we keep going, after 20 years we will have $345,000, after 30 years we will have $960,000, and after 40 years we would have a sizeable $2.5 million. This is compounding in all its glory.
Though, it is worth remembering that past performance is not a guarantee of future returns.
Beating the market
If you're satisfied with the market return, then you could do what Buffett says and buy an index-tracking ETF.
However, if you want to try and beat the market like Buffett has done consistently over several decades, then you could try investing like he does.
Berkshire Hathaway's leader looks for companies with strong business models and sustainable competitive advantages.
He also takes advantage of downturns to load up on shares. In an opinion piece in the New York Times in 2008, he said:
Be fearful when others are greedy, and be greedy when others are fearful.
Before adding:
I can't predict the short-term movements of the stock market. I haven't the faintest idea as to whether stocks will be higher or lower a month or a year from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.
Overall, it's never too late to start buying ASX shares and if you take advantage of compounding, you have the potential to generate significant wealth in the future.
