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Investing even small amounts of money can lead to significant wealth over time, and no one knows this better than Warren Buffett, one of the most successful investors of all time. With a net worth of approximately $69 billion, Buffett’s investment strategies are worth noting. Here’s how he suggests investing small sums of money:
Start Early
Buffett emphasizes the importance of starting to invest as early as possible. The power of compound interest is significant; the earlier you start, the more your money can grow. Buffett likens it to rolling a snowball down a hill — the longer the hill, the bigger the snowball gets. As he once said, “The trick is to have a very long hill, which means either starting very young or living… to be very old.”
Look for Value
When investing, Buffett recommends looking for businesses that are selling at a discount. This means finding companies that are undervalued by the market but have strong fundamentals and growth potential. This strategy is known as value investing, and it’s how Buffett built his fortune. He advises, “[Search for] businesses that are selling at a discount and hold them for the long term.” This advice has led to some of Buffett’s biggest investments.
Focus on Small Companies
Buffett has mentioned that his best period as an investor was when he was just starting out, with small sums of money. This is because he could take more risks and invest in smaller companies with higher growth potential. As he put it, “If you are working with a small sum of money… and are willing to do the work, there is no question that you will find some things that promise very large returns compared to what we will be able to deliver with large sums of money.”
Don’t Worry About Short-Term Fluctuations
Buffett advises against worrying about short-term fluctuations in stock prices. Instead, focus on the long-term potential of your investments. If you’ve invested in a good company at a good price, short-term market movements shouldn’t concern you. He famously said, “If you’re going to do dumb things because your stock goes down, then you shouldn’t own stock at all.”
Be Prepared to Work Hard
Investing, even with small sums of money, requires effort and research. Buffett warns that investing should never be easy and that you need to be willing to do the work to find great investment opportunities. He and his partner Charlie Munger believe that “There’s too much chasing easy money.”
Diversify, But Not Too Much
While diversification is important to manage risk, Buffett also believes in focusing on a few great opportunities. He has said, “Diversification is a protection against ignorance. It makes very little sense for those who know what they’re doing.”
By following Warren Buffett’s advice and focusing on long-term value, even those starting with small sums of money can build wealth over time. As Buffett himself has shown, it’s not about how much you start with, but how wisely you invest.
Editor's note: This article was produced via automated technology and then fine-tuned and verified for accuracy by a member of GOBankingRates' editorial team.
