Why was 99% of Warren Buffet’s wealth earned after his 50th birthday? The true holy grail of Investing.

Carlos Lontro
Apr 30, 2016 · 4 min read

This seems to make no sense at all right?! The other way around would be saying that Buffet did only 1% of his wealth since he started until he turned 50years old. This would be crazy and it’s not logic, right? Buffet is 85years old and has been investing since he was 11years old. Would have been the 39years he spend investing just a waste of time? Well, all those who know me are sure that I would see this as a mathematical challenge and as an excel enthusiast I would seek an exact answer to this question. And so I did! :) The answer to this question can be YES! Buffet could made less than 1% of his current wealth before he was 50. This is how compounding works. The last years have the biggest ratio of the total capital and when looking at the end of the investment plan, today with 85years, he made more profits this last year then the total equity he had when he was 70! Its a exponential curve upwards when you compound. True compounding only happens when you save and invest! The saving part is the true holy grail of the equation. Here’s the net worth of Warren Buffet in a chart where you can visualize this effect and the weight it has on the last years. Time is key!

Now for fun and to show that anyone could achieve similar results I’ll show you a mathematical example where I used a starting investment amount of 1.000$ with a yearly saving and increase of investment of 1.000$ as well. For the yearly earnings amount I used the average performance of Warren Buffet, 15% per year. Starting at the same age as he did, 11, saving and re-investing each year an additional 1.000$. And the result is an astonishing total final amount at age 85 of a net worth of 1.858.400.675$

The profits generated on the last year of this example where 31.626.795$ and the total capital at age 70 would be only 29.791.817$.

Only at age 53 the equity, on this example, reached above 1% from the total wealth reached at age 85.

I added the math’s on my sheet (that I’ll share the link on the bottom) to remind everyone that wealth does not come from high risk earnings, but from low risk and safe investments and time!

Here is the full picture of the mathematical example.

It is not in our instincts to grasp how compound interest works over long periods of time. Buffet understood the math’s of compounding from an early age and made his dream come true.

Now many think that it is not worth investing because it requires a lot of money to do so and achieve these big figures and results and many more lose money in high risk aiming to double a couple of thousands to reach maybe a 4digit figure and then start investing long term. Almost all fail in this process and lose money or get greedy and don’t stop when reaching the target to eventually lose more just later.

High risk works only with small accounts! As soon as you start trading bigger amounts, you will be trading against the market. Liquidity providers will start monitoring you and watching at you because now you matter and can cause a big risk for them, as the equity traded represents a bigger % of the broker’s money pool and also you might not get your orders filled. Market volatility and also emotional behavior simply don’t work long time at high risk. Stop dreaming with big earnings, above 30% with big capital. It works and there are traders who manage high returns, but as soon the exposure gets big for the liquidity provider sooner or later this trader will fail. First rule, never invest big in high risk! It works only long term below a few digits accounts. Second rule, compound in low risk! Save, invest, repeat! Why? Well, you actually only need to save 10$ per month with an initial 100$ investment to reach 350.000$ wealth in 40 years with the same average earnings then Warren Buffet.

I wish you all safe investments and don’t make financial mistakes, stay away of high risk with high cash. Save first, then spend what is left and you can afford to risk.

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Carlos Lontro

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Hi, I’m Carlos. A Popular Investor @eToro -> ESIRInvestors; and Asset Manager & administrator of ESIR Investors Community on FB.