You Don't Need to be Warren Buffett
Not Taking Financial Cues from People Playing a Different Game
This week, I watched Becoming Warren Buffett - a documentary which details the life of Warren Buffett and the journey of him as a numbers-obsessed boy all the way through the legendary investor and philanthropist he is today. It’s well worth 90 minutes of your time and he just seems like such a friendly, funny, down to earth person.
The bulk of the documentary of course focuses on Warren Buffett, the investor. Did you know more than 2,000 books are dedicated to how Warren Buffett built his fortune? I’m not saying Buffett isn’t worthy of having that many books being written about him, but I’d argue the vast majority of them don’t highlight the simplest, yet most important fact about him.
It’s not so much that Buffett is a phenomenal investor - it’s that he’s been a good investor since he was literally a child. Had Buffett started investing in his 30s and retired in his 60s, no one would have ever heard of him.
Buffett’s net worth is, as of this writing, $80.5 billion. Of that, about $80.3 billion was accumulated after his 50th birthday. $77 billion came after he qualified for social security in his mid-60s. This isn’t because he hit some extraordinary investment jackpots in his later years either.
Consider this - Buffett has been able to generate investment returns of 22% annually over his lifetime. What if, instead of starting his investing journey at age 10 (how crazy is that?), he led a more traditional path of fumbling through his early 20s, finding his career groove later in his 20s and had a net worth of $25,000 by age 30.
Now let’s say he was able to earn those stellar 22% returns every year until the age of 60 and retired to play golf and ride off into the sunset...what would he be worth today?
$11.9 million. About 99.9% less than his current net worth.
As Morgan Housel says:
His skill is investing, but his secret is time.
We’ve all seen some version of these extreme compound interest examples. Compound interest is powerful, there’s no doubt about it. It’s hard to wrap our minds around though because our brains think linearly, not exponentially. And remember, not all compound interest comes in the form of money.
But should Buffett-like patience and longevity be what you strive for with your investments? If that’s the way you’re wired, by all means. But beware of taking financial cues from people playing a different game than you are.
One of my favorite personal finance writers half-jokingly said on his Podcast, “If 90% of your wealth comes after age 80, I can’t get excited about that. I think compounding is overrated.”
I can’t say that he is wrong. Why save for decades away when we’re never guaranteed tomorrow?
As with all things, the best answer lies somewhere between skimping on all fun things to allow compound interest to work its magic and spending money recklessly where you’re starting at zero saving for retirement in your later years.
It’s possible to save for the things you care about by spending on the things you love and cutting costs mercilessly on the things you couldn’t care less about.
Hands down the best way to take advantage of compound interest in the most painless way possible is by automating your finances. Set up your 401k contribution percentage and turn on the feature for it to auto-adjust 1% higher each year. Set up automatic monthly contributions to your Roth IRA. Open an Acorns account. The list goes on.
The power in automating our dollars allows us to never feel like we were ever emotionally tied to that money to begin with.
We can live with scrolling past a cute puppy on Instagram. The second I meet the puppy though, I might cry needing to leave it.
Money operates in a similar way. Out of sight, out of mind? We adjust accordingly. Forced to log in and press three buttons to make a manual transfer? We’ll generate a list of excuses the length of a CVS receipt.
Everyone finds a different groove in terms of what works for them and their money. Warren Buffett’s investing consistency is something to admire - but remember admiration and emulation don’t always need to to be in perfect alignment.