Warren Buffett’s long track record of generating high returns could help investors to build a retirement nest egg that reduces their reliance on the State Pension.
This may prove to be a worthwhile move, since the State Pension age is rising. Furthermore, the amount that is paid each year is unlikely to provide financial freedom for most people in older age.
With many UK shares currently trading at low prices, now could be the right time to build a portfolio of high-quality businesses. Over the long term, they could produce impressive returns.
Warren Buffett’s strategy
Warren Buffett’s strategy could be especially relevant at the present time for investors who are seeking to reduce their dependence on the State Pension in retirement. He focuses on buying high-quality companies when they trade at low prices. The stock market crash means that investor apathy towards some sectors, and the wider market, has increased. As such, many companies with wide economic moats currently trade at low prices.
Businesses with large economic moats, or competitive advantages, may be able to deliver relatively strong financial performances over the long run. For example, they may have a unique product that makes consumers more likely to become customers. Similarly, they may have a strong brand or a lower cost base that gives them a clear advantage over sector peers.
Warren Buffett has historically purchased such companies. They have often produced relatively impressive returns. This could continue to be the case both during the current economic uncertainty, and as the economy recovers in the long run. The end result may be market-beating returns for such companies that catalyse an investor’s retirement portfolio.
A long-term viewpoint
Warren Buffett also takes a long-term approach to investing. This has previously been beneficial because it allows his holdings the time they need to deliver on their growth strategies. It also provides sufficient time for investor sentiment to improve following weaker periods such as the stock market crash that took place earlier this year. This can provide greater scope for compounding to have a positive impact on returns, which may lead to a surprisingly large nest egg in the long run.
Even if there is a second market downturn in the coming months, investors could generate impressive returns that help them to overcome an inadequate State Pension in the long run. The stock market has a long history of recovering from its challenging periods to post new record highs. While such an outlook may currently seem unlikely, over time, factors such as fiscal and monetary policy stimulus could have a positive impact on asset prices.
Therefore, now may be the right time to start buying undervalued stocks to overcome a disappointing State Pension. Doing so may allow an investor to follow Warren Buffett’s lead and generate a large portfolio in older age.
