I’m aiming to retire within the next 20 to 30 years. And I’m becoming increasingly worried about the size of the State Pension I’ll receive when I hang up my work boots. So I’m following the strategies of legendary investors like Warren Buffett to boost my chances of retiring comfortably.
The government seems unwilling to commit to the ‘triple lock’ pension increase mechanism. More bad news could be coming in the weeks, months and years ahead as the UK tries to balance the books.
Cash vs stocks
This is why I’m using UK shares to try and build a healthy nest egg to retire on. One of the alternatives is to stash my money in a low-yielding savings account and accept the risk of making poor returns.
Today the best-paying, easy-access Cash ISA is offered by Skipton Building Society. This offers a rate of just 2.1%, according to Moneysupermarket.com. That’s far below the returns that I, as a long-term investor, could expect to make with stocks.
Historically, stock investing provided an average annual return of between 8% and 10%. That’s for investors who buy stocks to hold for the long haul, say a decade or so.
I realise, of course, that this isn’t guaranteed. But based on such rates of return I could, if I regularly invested £300 a month, make between £407,820 and £592,178 after 30 years.
That’s far above what I could make if I just saved that £300 in a Cash ISA. Then I’d be sitting on a much lower £148,355.
Investing like Warren Buffett
This is I why use the bulk of my spare cash each month to buy UK shares via a Stocks and Shares ISA. I only use my Cash ISA to hold cash temporarily or to store money for a rainy day.
The thing is, I think I have a chance to make an even-better long-term return than 8% to 10% average. Warren Buffett has been making above-average returns for decades. And by following some of his key principles I think I could also beat the market.
One way I’m seeking to achieve this is through value investing. There’s a number of formulae I can use to work this out including price-to-earnings (P/E) or price-to-book (P/B) ratios. But this isn’t a precise science and Buffett’s calculation of ‘intrinsic’ value can also be subjective.
I’m using recent stock market volatility to find value stocks to buy too. Investing in beaten-down bargains sold during market panic is another favoured tactic of the Berkshire Hathaway boss. Rio Tinto and Bunzl are a couple of FTSE 100 value stocks I’ve bought following heavy falls in 2022.
And finally, like Buffett, I only buy stocks I’d be happy to own “if the market shut down for ten years.” This gives me a chance to ride out market volatility. And it also encourages me not to make sudden silly investing decisions that could end up costing me a fortune.
