Billionaire investor Warren Buffett has a reputation for seeking out good business opportunities. And with the 2022 stock market correction sending many stocks plummeting, countless high-quality companies are looking very cheap.
But over the past two weeks, macroeconomic trends show that inflation is slowly coming under control. And with newfound hope that an economic recovery is underway, stocks are gaining ground. So much so that the FTSE250 the index has climbed 15% in just one month!
There’s no way to know for sure if this is just a short-term boost or the start of the long-awaited stock market rally. But if it’s the latter, time is running out to take advantage of the discounts. And it seems even the “Oracle of Omaha” has been shopping lately, investing over $9 billion between July and September.
As crazy as it sounds, given all the volatility, buying stocks today could unlock substantial long-term wealth. In fact, even a 40-year-old investor starting from scratch can start building a big nest egg today.
Retire comfortably using Buffett’s tactics
Over the past decade, the FTSE 250 has generated an impressive 11% annualized return including dividends. That might not seem like a lot, but compounded over the decades, it’s quite substantial.
With the UK’s average retirement age rising from 65, a 40-year-old investor has around 25+ years to build a meaningful retirement fund. Fortunately, that’s a lot of time.
Assuming an investor could match the 11% return of the index and pump £500 a month into an investment portfolio, after 25 years a nest egg would be just under £800,000. When applying the classic 4% withdrawal rule, this translates to a passive retirement income of around £32,000 a year, more than triple the current state pension.
But with so many high-quality companies trading at massive discounts today, investors adopting Buffett’s buy strategy could outperform the market. Even if it’s only an extra 1%, it’s enough to turn £32,000 into £37,600. And, best of all, by using Stocks and Shares ISA, all of those earnings are tax-free.
take a step back
As exciting as this long-term prospect may seem, there are a few caveats to consider. First, 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.
Also, as 2022 has kindly reminded everyone, stock market crashes and corrections can and do happen. As a result, once successful portfolios can quickly see years of growth wiped out in just a few months. And although the stock market has a perfect track record of recovery, the process can take time – in some cases, even years.
Over the next two and a half decades, the likelihood of multiple bouts of volatility seems very likely. And depending on the timing of these events, the value of an investor’s retirement fund could be worth far less than expected, even if they follow in Buffett’s footsteps.
Nonetheless, consistently buying stocks of high-quality companies at great prices over the long term is a proven strategy for building wealth. And therefore, although there are risks, investing today could be a wise move for patient investors.
The post-market correction: start buying stocks like Warren Buffett to retire in style appeared first on The Motley Fool UK.
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Motley Fool United Kingdom 2022
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