After what seemed to be the year of inflation – the metric was a steady conversation topic over the course of 2022 – it's likely many ASX investors looking to build retirement wealth have considered establishing a position in gold. But I believe greater opportunities can be found by employing the wisdom of investing great Warren Buffett.
By doing so, I think I could simultaneously hedge against inflation and get rich quicker than if I were to buy into the yellow metal.
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Building inflation hedges into retirement funds
Hedging against inflation is an important factor to consider when looking to build wealth over the long term.
Inflation eats away at the value of cash by increasing the cost of goods and services. Thus, what might look to be a healthy retirement nest egg today, might not be so strong in a decade or two.
Gold is often touted to be a worthwhile inflation hedge. The metal's value is typically immune from the measure. However, the price of gold has only gained around 15% over the last 10 years.
Meanwhile, ASX shares can also act as inflation hedges as they're able to provide gains faster than inflation can dampen cash. Indeed, the benchmark S&P/ASX 200 Index (ASX: XJO) has gained approximately 56% over the last decade.
And I think I could realise even greater returns by following Buffett's advice.
Using Buffett's wisdom to invest in inflation-beating ASX shares
Buffett built much of his US$110 billion fortune by investing in undervalued shares and compounding his returns. The billionaire's investing strategy is also known as value investing.
Value investors typically aim to buy quality companies – often with wide economic moats and strong competitive advantages – when they're trading below their true worth.
And there are likely plenty of ASX shares trading at bargain prices following the market's 2022 tumble. The ASX 200 fell more than 5% last year.
Therefore, I believe the market currently houses many stocks capable of outperforming the market over the coming years, perhaps allowing an investor to retire early.
Compounding, compounding, compounding
The ASX 200 has gained around 5.6% each year on average over the last 10 years. But I think I could do better using Buffett's wisdom.
Say, I could invest $10,000 each year, realising a total average annual return of 10%.
After 25 years I would have invested $250,000. Meanwhile, if I compounded all my earnings, my portfolio would be worth nearly $1.1 million.
If I could do even better and realise a 15% average annual return, I could boast a near-$2.5 million nest egg in 25 years' time.
Of course, no investment is guaranteed to provide returns, no matter how considered it might be.
However, I believe consistently following Buffett's advice could prove a better retirement wealth-building strategy than investing in gold.
