Warren Buffett hasn’t become one of the wealthiest people on earth because he’s saved money over the years. Rather, he’s lived within his means and invested money in shares to capitalise on the stock market’s long-term growth potential.
As such, with interest rates likely to remain low for a number of months or even years, now could be the right time to buy UK shares in an ISA. Many FTSE 100 and FTSE 250 stocks are trading at low prices, which could lead to even higher returns in the long run.
Following Warren Buffett’s investing strategy
Although Warren Buffett holds cash, his wealth has largely been generated from investing money in the stock market. Now could be the right time to follow a similar strategy. Certainly since many UK shares are trading at low prices that could make them attractive to ISA investors.
For example, stocks such as easyJet, Rolls-Royce, Lloyds and Whitbread are all trading at extremely low price levels. They face challenging operating conditions. But they appear to have the financial means to overcome short-term problems. And then they can capitalise on a likely stock market recovery over the coming years.
Similarly, stocks with wide economic moats such as Unilever, Diageo and Burberry could be appealing investing opportunities. Warren Buffett has historically sought to buy stocks with large competitive advantages that can mean less risk and higher returns. Since those companies, and many others, have been negatively impacted by coronavirus, they could offer wide margins of safety at the present time.
Buying UK shares instead of using cash savings
As mentioned, Warren Buffett holds cash to take advantage of stock market mispricings and to provide financial stability. However, this doesn’t mean he relies on it to deliver growth for his capital over the long run. If he had done, it’s unlikely he’d be as wealthy or famous as he is today.
At the present time, low interest rates mean that cash savings could produce returns that are below inflation over the coming years. This would mean an individual’s spending power would fall.
As a result, their capacity to enjoy improving financial freedom in older age may be somewhat limited. And, with the economic outlook being uncertain, a period of prolonged low interest rates could well be ahead.
As such, now could be the right time to follow Warren Buffet’s investment blueprint. And that means buying undervalued shares for the long run. The past performance of the FTSE 100 and FTSE 250 also shows that a stock market recovery is likely to take place in the coming years.
This may lift valuations among today’s lowly-priced shares and allow them to make a positive impact on an investor’s portfolio prior to their retirement date.