No savings at 40? Use the Warren Buffett method in 2023 to target financial freedom

2023 might be one of the best years to use Warren Buffett’s investment strategy and capitalise on bargains to grow a £1m portfolio. Here’s how.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Warren Buffett at a Berkshire Hathaway AGM

Image source: The Motley Fool

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Super-investor Warren Buffett has an exceptional track record of picking individual stocks. Since he started his investing journey at the age of 11, he’s since amassed a $100bn+ fortune, enjoying complete financial freedom.

As such, following in his footsteps could help long-term investors improve their own financial positions, especially after the recent correction.

Today, the stock market continues to be a volatile place. There’s still a lot of uncertainty surrounding inflation and its impact on businesses and consumers.

Nevertheless, history has shown countless times that such periods are among the best times to buy individual stocks. After all, there are some top-notch companies now trading at attractive discounts. And capitalising on these opportunities is precisely how the ‘Oracle of Omaha’ built his multi-billion-dollar fortune.

Warren Buffett hunts for value

Being taught by the father of value investing, Ben Graham, it’s hardly surprising Buffett is an avid value investor. The core of his investment strategy is to buy terrific companies at low prices.

Focusing solely on high-quality enterprises makes the probability of unlocking superior long-term returns far higher. And these gains are only amplified when shares are bought at a discount.

Under normal circumstances, finding bargain-buying opportunities can be quite a challenge. But it becomes far easier during a bear market when emotions are running high.

That’s why some professional investors call it a “stock picker’s market”. And it’s why Buffett hasn’t been this active in buying shares since the 2008 financial crisis.

Even with the FTSE 100 recently hitting a new record high, plenty of businesses in sectors like technology, electronics, and consumer discretionary are trading firmly below their historical averages.

In some cases, this may very well be justified. But in others, companies may be perfectly capable of weathering the storm. And eventually, when economic conditions improve, profitability will likely follow, sending depressed stocks surging.

Building a portfolio at age 40

Over the last 30 years, Buffett has achieved an average annual return of roughly 20%. Obviously, replicating these gains consistently isn’t easy. In fact, many experts have tried adopting his value investing strategy and failed to come close to such impressive returns.

Fortunately, if an investor can only muster half of these gains, it’s enough to build a substantial nest egg even when starting at the age of 40. Assuming an individual plans to retire at 65, that’s two and a half decades to capitalise on the magic of compounding.

Allocating as little as £500 a month at a 10% return is enough to boost an investment portfolio to £663,416. And for those capable of investing £750, this balance shoots up to just under £1m. That may not be Buffett’s multi-billion-dollar fortune, but it definitely unlocks plenty of financial freedom during retirement.

Of course, it’s important to remember investing is never risk-free. Even by sticking to the best stocks in the world, volatility in the financial markets can still rock the most sturdy portfolio.

25 years is plenty of time for multiple crashes and corrections to occur. Depending on their timing, an investor’s portfolio could be worth significantly less than expected. But once again, these bear markets will create further rare buying opportunities for stock pickers like Buffett and those that follow his investing strategy.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Views expressed on the companies mentioned in this article are those of the writer 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 diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

3 top UK dividend shares to consider buying for lasting passive income

These dividend shares might look a bit risky for taking home cash right now. But building a pot for future…

Read more »

Hand is turning a dice and changes the direction of an arrow symbolizing that the value of an ETF (Exchange Traded Fund) is going up (or vice versa)
Investing Articles

1 top-notch ETF I plan to own in my ISA for the next 10 years

Our writer highlights a thematic ETF that he plans to hold in his Stocks and Shares ISA portfolio for many…

Read more »

Investing Articles

8.1% dividend yield! 2 dirt cheap passive income stocks I’d buy to target £1,620

Looking for top passive income stocks to buy on sale? I think these two property giants could be too cheap…

Read more »

Happy young plus size woman sitting at kitchen table and watching tv series on tablet computer
Investing Articles

Could Raspberry Pi shares hit £5 by 2030?

After a strong start out of the blocks this month, our writer asks whether Raspberry Pi shares could move further…

Read more »

Close-up of British bank notes
Investing Articles

Five 5%+ yielders I’d buy for an ISA today!

Our writer identifies a handful of FTSE 100 and FTSE 250 firms each yielding at least 5% he'd happily buy…

Read more »

Front view photo of a woman using digital tablet in London
Investing Articles

5 stocks with 5%+ yields I’d love to buy and hold in a Stocks and Shares ISA

Harvey Jones is keen to add these five FTSE 100 high-yielders to his Stocks and Shares ISA, ideally before they…

Read more »

A young Asian woman holding up her index finger
Investing Articles

I’d target £880 of passive income annually, spending £10K now on this FTSE 100 share

Our writer explains how he would add to his diversified portfolio happily by investing in this FTSE 100 passive income…

Read more »

Light trails from traffic moving down The Mound in central Edinburgh, Scotland during December
Investing Articles

3 reasons I think the Scottish Mortgage share price could keep rising

Christopher Ruane explains a trio of reasons he thinks the once-mighty Scottish Mortgage share price could be set to increase…

Read more »