Forget term deposits and listen to Warren Buffett’s advice with ASX shares

Berkshire Hathaway (NYSE: BRK.B) leader Warren Buffett is widely regarded to be one of the greatest investors of all time.

It isn’t hard to see why. The Oracle of Omaha’s most recent letter to shareholders reveals that he has delivered an average annual return of 19.8% for Berkshire Hathaway since back in 1965. This is almost double the market return over the same period.

To put that return into context, a single $1,000 investment in 1965 would be worth approximately $35 million today.

As a comparison, the market return would have turned that $1,000 into $280,000. And while this is still a fantastic return, I know which one I would prefer.

In light of the above, it certainly can pay to listen to Buffett’s advice when you’re planning to buy ASX shares.

Especially if you are contemplating buying term deposits instead of ASX shares.

Why invest in ASX shares over term deposits?

Firstly, while ASX shares could be the superior option for most investors, they may not be for everyone.

Term deposits are effectively low-risk loans made to banks in exchange for a fixed interest rate over a certain period of time. They offer a degree of safety, stability, and predictability. This can make them good options if you’re focusing on capital preservation and income.

However, their returns are typically modest and subject to inflation risk. Right now, you’re looking at a return of approximately 4% per annum (before inflation) from a 12-month term deposit. This is a fifth of the return that Buffett has achieved with shares and less than half the market return.

In 2008, Buffett commented on this type of use of capital. He said:

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

How do you invest like Buffett with ASX shares?

Investing like Warren Buffett is easier than you think.

In his most recent letter to shareholders, Buffett provided investors with a simple explanation for how he invests so successfully. This could be used by Aussie investors with ASX shares. He said:

We want to own either all or a portion of businesses that enjoy good economics that are fundamental and enduring.

Overall, although term deposits offer a degree of safety and stability, their returns are typically modest and subject to inflation risk.

For investors seeking higher returns and long-term value, ASX shares arguably represent the superior option. By investing in high-quality companies with strong competitive advantages and long-term growth potential, like Buffett does, investors have the potential to grow their wealth over time.

The post Forget term deposits and listen to Warren Buffett’s advice with ASX shares appeared first on The Motley Fool Australia.

(function() {
function setButtonColorDefaults(param, property, defaultValue) {
if( !param || !param.includes(‘#’)) {
var button = document.getElementsByClassName(“pitch-snippet”)[0].getElementsByClassName(“pitch-button”)[0];
button.style[property] = defaultValue;
}
}

setButtonColorDefaults(“#0095C8”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#0095C8”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#fff”, ‘color’, ‘#fff’);
})()

More reading

• How to become a multi-millionaire with ASX shares
• Buffett’s latest thoughts on business, investing and Berkshire
• Here are Warren Buffett’s tips to becoming rich with ASX shares
• No savings in 2024? I’d follow Warren Buffett and start building wealth
• What can ASX investors learn from Warren Buffett’s latest buys and sells?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway. The Motley Fool Australia has recommended Berkshire Hathaway. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia https://ift.tt/RM4t6p1