Buy-to-let has long been a popular method of building wealth, yet following billionaire investor Warren Buffett’s investing strategy may be the smarter move in 2023.
Owning property can generate a robust combination of income and capital growth over tarrenhe long term. But with house prices now dropping, due to rising interest rates and the UK government once again hiking taxes on landlords, the stock market might be a better alternative.
After all, by using a Stocks and Shares ISA, taxes are completely eliminated from the equation. And following the stock market correction in 2022, the FTSE 350 is now home to some tremendous bargains.
Investing like Buffett in 2023
As a dedicated value investor, Buffett’s entire strategy revolves around buying and holding high-quality enterprises at cheap valuations. This means focusing exclusively on businesses with strong financials and plenty of competitive advantages.
Having a competitive edge over rivals is particularly important as it often enables firms to take market share and rise to sector-leading status. Similarly, verifying that a balance sheet is healthy ensures that the business has sufficient resources to weather economic storms.
In the current climate, investor sentiment isn’t exactly high. And with many individuals fleeing the markets, plenty of top-notch UK shares are trading well below their intrinsic value. Identifying these companies while they’re out of favour could lead to impressive long-term gains for patient investors.
Nothing is risk-free
Investing through an ISA may be more tax efficient than buy-to-let. But that doesn’t make it a guaranteed method of building wealth. As many investors were abruptly reminded last year, share prices don’t always go up. And even value stocks, which are often viewed as lower risk, can turn into bad investments.
Over the last couple of months, the stock market has slowly been trending upward as it begins to recover. However, with a looming recession in the UK and the cost of living still increasing, further market turbulence may be just over the horizon. As such, cheap stocks today could be on the verge of getting cheaper.
That’s why employing diversification and pound-cost averaging are likely to be a prudent ideas. These investment strategies help mitigate some risks, protecting against future volatility. But they don’t completely eliminate it. And even a diversified Buffett-style portfolio can still produce negative returns.
The bottom line
Investing in the stock market while volatility is high isn’t everyone’s cup of tea. But with greater risk comes greater potential returns.
Throughout history, some of the best performances seen in UK shares followed directly after a stock market crash or correction. And while these events are difficult to forget, they’re actually quite uncommon. That’s why 2023 could be a rare opportunity to adopt Buffett’s investment tips and capitalise on bargain stock prices before it’s too late.
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.
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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.