Warren Buffett once said that real wealth comes from patience. He explained that letting compounding do the work is one of the smartest financial decisions anyone can make.
Compounding simply means your returns begin to earn their own returns. With enough time, this steady build can truly change long term outcomes.
Today there are more choices, rules and responsibilities that investors must navigate. Even so, the core idea stays the same. Start early, stay consistent and let growth build quietly over time. Another Buffett reminder brings it home:
“If you don’t find a way to make money while you sleep, you will work until you die.”
We may not be able to achieve Buffett’s level of wealth, but some factors can help everyone get their money working for them, rather than the other way around.
The first is the simplest of all: live within your means.
People who constantly spend more than they earn and chase money to support their lifestyle will not generate long-term wealth. The key is to allow investment wealth to accumulate and not draw too heavily on it. Those who don’t need to draw on their investment wealth, or who only draw lightly, allow their wealth to stay invested in the long term and through different cycles.
A significant factor in underperformance from investment portfolios is selling when markets are in turmoil, then not reinvesting until markets are compliant and confidence is high. Many people generate returns substantially less than general market index returns because of this practice, eroding their wealth and losing the benefit of compounding.
Another factor in making the most of investments is monitoring risk and liquidity carefully.
This is something we see as a common trait in wealthy people. They may access fancy investments that aren’t available to others, but they still carefully consider liquidity, risk and timeframe to ensure they don’t become over- exposed or locked in. The bulk of their investments are liquid, readily available options, such as shares and cash.
Wealthy families are also very careful about investment costs, namely fees and taxes. Larger portfolios often incur lower-than-average fees. They use cheaper wholesale investment products and pay lower percentage adviser fees. Crucially, wealthy people seek good tax and structural advice to minimise tax leakage and pay lower average taxation rates.
Again, this may not be something every investor can access, but it is still a good discipline to monitor costs closely and make sure you don’t end up paying more than necessary.
Financial literacy is becoming a hot topic and is something wealthy families take seriously. They view it as a valuable investment to spend money on education for themselves and their children.
There are many free tools and information packs available to those looking to improve their knowledge and understanding of finance and investments, including from ASIC’s Moneysmart.
Similarly, wealthy families think about estate planning and succession planning. Many parents and grandparents like the idea of leaving a legacy, especially with concerns about younger generations being unable to get into the housing market.
However, careful planning and good advice are necessary to minimise friction and costs in an intergenerational transfer. Wealthy families establish methods and channels, including advice and investment preferences, that work for them. Often this becomes a legacy, together with the transfer of wealth, to the next generation.
Of course, the wheels can fall off. Wealth can easily dissipate and be destroyed. Often this is a result of taking on too much risk that doesn’t pay off. Or it can simply be a case of overspending compared to income.
Investing a bit of time and effort into understanding and managing money could be the best decision you make.
Michael Hutton is a director of HLB Mann Judd Wealth Management (NSW) Pty Ltd (AFSL 526052) ABN 65 106 772 696. This content contains general advice which does not consider your particular circumstances. You should seek advice from HLB Mann Judd Wealth Management (NSW) who can consider if the strategies and products are right for you. This article is part of Michael’s regular Australian Financial Review column and appeared in the AFR on 18 November 2025