Looking to 'get rich quick'? Use the Warren Buffett approach instead
A man wearing only boardshorts stretches back on a deck chair with his arms behind his head and a hat pulled down over his face amid an idyllic beach background.
Haste makes waste. This old saying perfectly captures the pitfalls of trying to get rich quick.
Many people are tempted by schemes that promise instant wealth, but these often lead to disappointment and financial loss. They can also be incredibly stressful, prompting impulsive decisions.
Instead, why not follow the investment strategies of Warren Buffett, one of the world's most successful investors? Buffett's strategy is built on a foundation of understanding and steady progress. It is all about patience, discipline, and long-term growth, offering a more reliable path to financial success.
Back to the basics
Buffett's investment philosophy starts with a simple rule: invest in what you understand. He believes that knowing the business and industry inside out helps investors make informed decisions and reduce risks.
Long-term investing is another cornerstone of Buffett's strategy. Unlike those looking for quick gains, Buffett focuses on the long-term potential of his investments. He often highlights the importance of patience and the power of compound growth over time.
Buffett is also a strong advocate for avoiding debt. He warns against using borrowed money to invest, as it can amplify losses and create financial instability.
Discipline is crucial in Buffett's approach. He sticks to his principles and avoids making impulsive decisions based on market trends or emotions. Consider his famous quote:
The stock market is designed to transfer money from the active to the patient.
ETF investing
These pieces of advice from Warren Buffett are all great, but do you find the sheer number of stocks on the ASX market too many to consider? Buffett's best advice for ordinary investors like us is this:
Consistently buy an S&P 500 low-cost index fund. Keep buying it through thick and thin and especially through thin.
Exchange-traded funds (ETFs) comprise a collection of stocks or bonds that offer diversification and lower risk. They are ideal for long-term investors who want to follow Buffett's approach without having to research and select individual stocks.
With that in mind, let's consider these two ASX ETFs.
iShares S&P 500 ETF (ASX: IVV) tracks the S&P 500 index, offering exposure to 500 of the largest US companies, exactly as Buffett has advised us to do. The ETF has a low management fee of 0.04%.
It boasts a total annual return of 16.32% over the past decade and offers a small distribution yield of 1.2% at its current unit price.
For Australia-focused investors, the Vanguard Australian Shares Index ETF (ASX: VAS) might be a good choice. This ETF follows the S&P/ASX 300 Index (ASX: XKO).
The management fee is 0.07% — somewhat higher than IVV ETF — but below many other ETFs traded on the ASX.
The fund's total return over the last 10 years was 7.72% per year. The VAS ETF pays quarterly distributions and yields 3.9% at the current unit price of $96.59.
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Motley Fool contributor Kate Lee has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended iShares S&P 500 ETF. The Motley Fool Australia has recommended iShares S&P 500 ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.