The Motley Fool

Forget saving money! I’d invest using these 3 Warren Buffett tips

While having some emergency cash available for unexpected events is a good idea, relying on savings to improve your financial future may lead to disappointment. The income returns on cash savings are relatively low at the present time, and could continue to provide a lacklustre return when compared to inflation.

As such, investing in the stock market could be a better idea when it comes to enhancing your long-term financial prospects. By following the tips of one of the world’s most successful investors, Warren Buffett, you may be able to generate impressive returns from your stock market investments in the coming years.

Claim your FREE copy of The Motley Fool’s Bear Market Survival Guide.

Global stock markets may be reeling from the coronavirus, but you don’t have to face this down market alone. Help yourself to a FREE copy of The Motley Fool’s Bear Market Survival Guide and discover the five steps you can take right now to try and bolster your portfolio… including how you can aim to turn today’s market uncertainty to your advantage. Click here to claim your FREE copy now!

Long-term focus

The stock market is highly volatile in the short run. Therefore, seeking to continually buy and sell companies in a short space of time can be highly challenging. There are a wide range of variables which affect stock prices in the short term, which means that consistently generating a profit can be tough.

As such, following the lead of Warren Buffett and investing for the long term could be a better idea. He has held many of his most profitable investments for decades. This not only allows those companies to deliver on their growth strategy, it also means that compounding has an extended period of time to boost your overall returns.

A buy-and-hold strategy also means less money is paid out in commission costs. Over the long run, even modest trading costs can add up to negatively impact on your returns.

Economic moats

Warren Buffett has always sought to purchase companies that have economic moats. This is essentially a competitive advantage which helps to shield them from difficult operating conditions, and also provides an opportunity for them to generate higher returns than their sector peers during economic booms.

Identifying companies which have an economic moat is not an exact science. However, by considering factors such as the cost base of a business, the uniqueness of its product and the degree of customer loyalty it enjoys, it may be possible to build a portfolio of relatively attractive businesses. This could improve your risk/reward ratio and lead to higher returns in the long run.

Fair prices

Buying companies which have wide economic moats means that you may end up paying a premium price. Warren Buffett accepts this, and focuses on paying a fair price rather than a low price. In other words, if a stock has a wide economic moat and is trading on a valuation which is not excessive, it could prove to be a sound purchase.

Certainly, cheap shares can be tempting at times. But through focusing on price and quality, it may be possible to generate high returns which ultimately improve your long-term financial situation at a much faster pace than cash savings.

There’s a ‘double agent’ hiding in the FTSE…

We recommend you buy it!

You can now read our new stock presentation.

It contains details of a UK-listed company our Motley Fool UK analysts are extremely enthusiastic about.

They think it’s offering an incredible opportunity to grow your wealth over the long term – at its current price – regardless of what happens in the wider market.

That’s why they’re referring to it as the FTSE’s ‘double agent’.

Because they believe it’s working both with the market… And against it.

To find out why we think you should add it to your portfolio today…

Click here to read our presentation.