start buying stocks like Warren Buffett to retire in style

Adults enjoy time together during road trips

Adults enjoy time together during road trips

Billionaire investor Warren Buffett has a reputation for finding bargains. And with the 2022 stock market correction sending many stocks tumbling, many high-quality companies look cheap.

But in the last few weeks, macroeconomic trends show that inflation is slowly under control. And with renewed hope that the economic recovery is underway, stocks are gaining momentum. That’s it FTSE 250 The index has shot up 15% in just one month!

There’s no way to know if this is just a short-term boost or the beginning of a long-awaited stock market recovery. But if it’s the latter, then time is running out to take advantage of the discount. And it seems even the ‘Oracle of Omaha’ has been on a shopping spree lately, investing more than $9bn between July and September.

As crazy as it sounds, given all the volatility, buying stocks now can unlock huge long-term wealth. In fact, even an investor aged 40 starting from scratch can start building up a large enough nest egg today.

Retire in comfort using Buffett’s tactics

Over the last decade, the FTSE 250 has delivered an impressive 11% annual return, including dividends. That may not seem like much, but added up over the decades, it’s pretty big.

With the average UK retirement age rising above 65, investors aged 40 have around 25-plus years to build a meaningful retirement fund. Fortunately, that’s plenty of time.

Assuming investors can match 11% return index and inject £500 a month in the investment portfolio, after 25 years, the nest egg will be just shy of £800,000. When applying the classic 4% withdrawal rule, this translates to a retirement passive income of around £32,000 a year – more than three times the current State Pension.

But with many high-quality companies trading at deep discounts today, investors who adopt Buffett’s buying strategy can lock in market-beating performance. Even if it’s just an extra 1%, it’s enough to turn £32,000 into £37,600. And, best of all, by using a Stocks and Shares ISA, all these benefits are tax free.

Take a step back

As exciting as this long-term prospect sounds, there are some caveats to consider. Firstly, even if an investor can match the performance of the FTSE 250 (which is never guaranteed), the index may not continue to deliver double-digit returns.

What’s more, as 2022 has reminded everyone, stock market crashes and corrections can and do happen. Consequently, a once thriving portfolio can quickly see years worth of growth wiped out in just a few months. And while the stock market has a perfect recovery record, the process can take time — in some cases, even years.

During the next two-and-a-half decades, the possibility of several periods of volatility seems highly likely. And depending on the timing of these events, the value of investors’ retirement funds may be better than expected, even following in Buffett’s footsteps.

However, consistently buying shares in high quality companies at bargain prices for the long term is a proven wealth building strategy. So, while there are risks, investing today can be a wise move for patient investors.

article Stock market correction: start buying stocks like Warren Buffett to retire in style appeared first in The Motley Fool UK.

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The views expressed in the companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a variety of insights makes we are better investors.

Motley Fool UK 2022

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