Billionaire investor Warren Buffett is known for looking for market opportunities. And with the stock market correction of 2022 taking a toll on many stocks, the number of high-quality ventures is looking very dirt-cheap.
But over the past few weeks, macroeconomic trends show that inflation is slowly coming under control. And with renewed hope that an economic recovery is underway, shares are on the rise. So much so that the FTSE 250 the index has shot up 15% in one month!
There’s no way to know for sure if this is just a short-term boom or the start of a long-awaited stock market recovery. But if it’s the latter, time is running out to take advantage of discounts. And it seems even the ‘Oracle of Omaha’ has been shopping lately, investing more than $9bn between July and September.
As crazy as it sounds, given all the volatility, buying shares today could unlock significant long-term wealth. In fact, even a 40-year-old investor can start building a large nest egg today.
Retire comfortably using Buffett’s tactics
Over the past decade, the FTSE 250 has delivered a remarkable 11% annual return, including dividends. That might not seem like much, but worse over the years, it’s quite substantial.
With the average UK retirement age rising from 65, a 40-year-old investor has about 25 years to build a meaningful retirement fund. Fortunately, that’s plenty of time.
Assuming an investor can match the index’s 11% return and inject £500 a month into an investment portfolio, after 25 years, the nest egg would be just shy of £800,000. Applying the classic 4% withdrawal rule, this equates to a passive retirement income of around £32,000 a year – more than three times the current State Pension.
But with so many high-quality companies trading at huge discounts today, investors who adopt Buffett’s buying strategy could lock in the market’s outperformance. Even if it’s just 1% extra, that’s enough to change £32,000 to £37,600. And, best of all, by using a Stocks and Shares ISA, all these gains are tax-free.
Taking a step back
As exciting as this long-term prospect is, there are a few caveats to consider. Firstly, even if an investor can match the performance of the FTSE 250 (which is never guaranteed), the index may not always deliver double-digit returns.
Additionally, as 2022 reminded everyone, stock market crashes and corrections can and do happen. As a result, successful portfolios can quickly see years of value in just a few months. And while the stock market has a perfect track record of recovery, the process can take time – in some cases, even years.
Over the next twenty and a half years, there is a high probability of multiple periods of volatility. And depending on the timing of these events, the value of an investor’s retirement fund could be much less than expected, even if Buffett follows suit.
However, consistently buying shares in high-quality enterprises at market prices is an advanced wealth creation strategy over the long term. And therefore, although there are risks, investing today could be a wise move for patient investors.
The post Stock market correction: start buying shares like Warren Buffett to retire in style appeared first on The Motley Fool UK.
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Motley Fool UK 2022