Buying and holding undervalued UK shares after the recent market crash may be a sound means of building a retirement nest egg over the long run.
Certainly, there is scope for a further decline in the prices of indexes such as the FTSE 100 and FTSE 250 in the short run. However, value investors such as Warren Buffett have a solid track record of using market declines to their advantage.
Therefore, even if you have no retirement savings at age 50, there is still time to improve your financial prospects in older age through buying a diverse range of stocks today.
Buying undervalued UK shares Many UK shares currently trade on valuations that are significantly lower than their historic averages. In many cases, this is due to their uncertain operating outlooks at a time when slowing GDP growth could impact negatively on their financial performances. Some investors may, therefore, determine that now is not the right time to buy FTSE 100 and FTSE 250 shares, and that they should await more settled economic conditions before starting to invest for retirement.
However, Warren Buffett has always sought to use market declines to his advantage. He has purchased solid businesses at low prices in order to provide the greatest scope for capital growth in the long run. This may help you to obtain a relatively high rate of growth in the coming years, since the stock market has a long track record of recovery from even its very worst downturns.
A buy-and-hold strategy In the short run, the prices of UK shares could suffer from economic and political uncertainty. Therefore, it is crucial that investors follow Warren Buffett and invest for the long term. Otherwise, they may fail to benefit from the growth potential offered by indexes such as the FTSE 100 and FTSE 250.
A buy-and-hold strategy also provides your holdings with sufficient time to deliver on their growth strategies. For example, they may be seeking to introduce a new product, or move into a new geographical area. This process may take time to implement, and then even more time for investor sentiment to improve in response to growing profitability. As such, a long-term strategy can be beneficial to your returns. With investors aged 50 likely to have 15+ years until they retire, they have sufficient time to adopt a buy-and-hold strategy of UK shares such as that used by Warren Buffett.
Retirement planning Buying UK shares today may help to reduce your reliance on the State Pension. The State Pension age is set to rise over the coming years, while the pace at which payments increase each year may slow in response to higher government spending elsewhere.
Therefore, starting to plan for your retirement today could be a good move whatever your age. Even if you have no retirement savings in place, it is never too late to start that process, with Warren Buffett’s long-term strategy being a sound means of taking advantage of undervalued stocks at the present time.
The post No savings at 50? I’d follow Warren Buffett’s tips to retire rich with UK shares appeared first on The Motley Fool UK.
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.
Motley Fool UK 2020