Warren Buffett’s views on Bitcoin aren’t exactly a secret. He’s fairly negative on what has arguably become one of the most divisive asset classes in modern investing history. And it’s not difficult to understand why.
As an avid value investor, Buffett is only interested in high-quality businesses that produce cash flow backed by solid underlying fundamentals – something Bitcoin is simply not designed to do. And it’s why, in the latest Berkshire Hathaway shareholder meeting, he said he wouldn’t buy Bitcoin, even if it was offered to him for just $25.
The jury is still out on whether the cryptocurrency will be a successful long-term investment. But from what I’ve seen so far, the asset behaves remarkably similarly to high-volatility penny stocks. And that’s not the sort of thing I’m tempted to add to my personal portfolio. Even more so considering there’s an alternative investment strategy that’s proven to build substantial wealth.
A path to becoming an ISA millionaire
It can be easy to forget during times of volatility that stocks represent pieces of businesses. And by owning shares, investors have a claim on earnings. That’s why when profits go up, the share price eventually follows.
Owning a portfolio of top-tier enterprises capable of long-term growth and value creation is a proven recipe for building wealth. In fact, that’s precisely how Buffett, along with countless other investors, have made their fortunes.
Picking individual stocks is obviously easier said than done. And a lot of knowledge, experience, and emotional discipline is needed to do it well. But thanks to the creation of index funds, being a good stock picker is no longer a requirement to becoming a successful investor. Even Buffett has advocated that investors unable or unwilling to spend time researching businesses should just buy index trackers.
On average, the FTSE 250 has generated an annual total return of 10.6% since its inception in 1992. Suppose this performance will continue into the future? In that case, investing just £250 a month in an ISA would lead to a £1m portfolio within just over 34 years.
Year
Accrued Deposits
Accrued Interest
Portfolio Value
1
£3,000
£150
£3,150
5
£15,000
£4,669
£19,669
10
£30,000
£23,008
£53,008
20
£60,000
£145,300
£205,300
30
£90,000
£552,829
£642,829
34
£102,000
£893,321
£995,321
Three decades is obviously a long time. But for those who have just begun their careers, starting today could be the first move toward securing an early retirement.
Buffett’s strategy isn’t risk-free
Needless to say, the prospect of becoming a millionaire is undeniably exciting, especially since doing it in a Stocks and Shares ISA means all of these gains are tax-free! However, there are some significant risk factors to consider.
Even by simply using an index fund, 2022 has been a good reminder that the stock market can be volatile. After all, the FTSE 250 suffered a 30% decline last year. And even Buffett’s portfolio took quite a beating.
In the long run, the UK’s flagship indices will recover (the FTSE 100 already has). But it’s highly probable multiple crashes and corrections will occur between now and 2057. Depending on the timing of these events, investors could have considerably less than predicted. Nevertheless, I believe it’s a risk worth taking.
The post Forget Bitcoin! I’d listen to Warren Buffett and invest £250 a month to try to retire rich appeared first on The Motley Fool UK.
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Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.
The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of investment advice. Bitcoin and other cryptocurrencies are highly speculative and volatile assets, which carry several risks, including the total loss of any monies invested. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.