Forget Bitcoin! I’d Listen to Warren Buffett and Invest in Cheap Shares to Retire Rich

Following Warren Buffett’s advice and buying cheap shares could be a better means of building for retirement compared to investing money in Bitcoin.

Diagonal chain made of zeros and ones. Cryptocurrency and mining.

Image source: Getty Images

Bitcoin’s price rise in 2020 may have increased its appeal among some investors. They may feel that it has momentum and could be a sound means of improving their retirement prospects.

However, the virtual currency carries significant risks that may derail its future performance. As such, following Warren Buffett’s tried-and-tested method of buying cheap shares in high-quality companies could be a less risky, and more profitable, means of planning for retirement.

Bitcoin’s major risks

Bitcoin may have made strong gains in 2020, but it continues to face significant risks. They include the fact that it has no fundamentals. Unlike shares, which have earnings and assets from which an investor can deduce their intrinsic value, the virtual currency’s price level is solely dependent on investor sentiment. As a result, its price can be volatile and susceptible to large movements without clear reason.

Since it has no fundamentals, investors cannot deduce whether its gains in 2020 mean that it is overvalued, fairly valued or undervalued. Buying any asset without a margin of safety versus its intrinsic value is likely to pose significant risks. It can mean disappointing returns, since investors may have already factored in a positive outlook.

Furthermore, Bitcoin has a limited size that may restrict its capacity to ultimately replace traditional currencies. Alongside its lack of infrastructure, this may mean that it has less real-world value than investors are currently anticipating. The end result could be that its price suffers, since investor expectations may not be met over the long run.

Following Warren Buffett in buying cheap shares

While Bitcoin has risen significantly in recent months, there are still a number of cheap shares that could deliver strong returns in the coming years. Many sectors remain out-of-favour with investors. In many cases this could be because of short-term challenges that gradually give way to more prosperous operating environments. This could mean there are a number of undervalued shares available to buy today in a wide range of industries.

Warren Buffett has become one of the wealthiest people on earth through simply buying attractive companies when they trade at low prices. As such, investors who are seeking to build a retirement portfolio can follow his method today to capitalise on a likely long-term stock market rally over the coming years.

Clearly, there are likely to be periods of volatility and uncertainty in 2021 that may mean Bitcoin outperforms shares at times in the short run. However, the track record of the stock market shows that high single-digit annual returns are very achievable from holding a diverse portfolio of shares. And, with many attractive companies trading at cheap prices today, there may be opportunities to outperform the stock market as it recovers from the effects of the 2020 stock market crash.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Tech Stocks

consider the options
Tech Stocks

Top 2 Beaten-Down Stocks I’ve Not Given Up on

The massive correction in the prices of these TSX stocks presents a solid buying opportunity at current levels.

Read more »

Various Canadian dollars in gray pants pocket
Tech Stocks

2 Cheap Stocks (Below $50) to Buy and Hold Till 2032

The inexpensive valuations and rapid growth will help these Canadian companies outperform the TSX by a wide margin.

Read more »

Couple relaxing on a beach in front of a sunset
Dividend Stocks

Canadians: 3 Easy Stocks to Invest in for Retirement

It’s never too early to begin retirement planning. Adding the right mix of stocks to an RRSP can grow your…

Read more »

TIMER SAYING TIME FOR ACTION
Tech Stocks

3 Growth Stocks to Buy Before it’s Too Late

These growth stocks were once greats, and now they're gross to even consider. But honestly, I'm asking you to consider…

Read more »

Family relationship with bond and care
Tech Stocks

Retire Young: 2 Cheap Growth Stocks to Buy Now and Hold Forever

There are huge sales on growth stocks in the tech sector. Here are two top picks to put on your…

Read more »

A worker uses the cloud for paperless work. tech
Tech Stocks

3 Tricks to Finding Undervalued Canadian Stocks

There are plenty of cheap Canadian stocks, but not all are undervalued. Yet this one certainly ticks all the boxes.

Read more »

Tech Stocks

Lightspeed Stock: Could a Holiday Rush Save the Tech Stock?

Lightspeed (TSX:LSPD)(NYSE:LSPD) stock continues to have near-term issues, but in the long term, this could be a stock everyone wants…

Read more »

question marks written reminders tickets
Tech Stocks

Is Evertz Technologies (TSX:ET) Stock a Buy After Q1 Earnings?

Evertz Technologies (TSX:ET) stock appears undervalued and offers a high dividend yield and growth potential. Watch identified challenges.

Read more »