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Why I’d open a Stocks and Shares ISA and follow Warren Buffett’s investment tips

Peter Stephens
close-up photo of investor Warren Buffett

Opening a Stocks and Shares ISA could boost your financial outlook. It provides access to a wide range of companies which could deliver high investment returns in the coming years. Additionally, an ISA offers tax efficiency that could improve your net returns in the long run.

Of course, deciding which shares to buy can be a difficult process. There’s a wide range of choice available, and a number of companies appear to offer favourable risk/reward opportunities. As such, following the investment tips of Warren Buffett could be a shrewd move.

Stocks and Shares ISA

One of the most appealing aspects of a Stocks and Shares ISA is its simplicity. Any adult can pay up to £20,000 per year into an ISA, and withdrawals can be made at any time without penalty. This means it offers a significant amount of flexibility for investors occupying a wide age range and different financial circumstances.

With no tax paid on amounts invested in a Stocks and Shares ISA, it could lead to major tax savings in the long run. For example, the annual dividend allowance stands at just £2,000. For anyone seeking to retire on a passive income from dividend shares, a Stocks and Shares ISA may substantially reduce their tax bill.

Additionally, a Stocks and Shares ISA is highly accessible. Often, there’s no account opening fee, while annual management fees are equivalent to the cost of one trade, in many instances. This means that smaller investors may find that the cost of an ISA doesn’t eat into their overall returns.

Warren Buffett

Of course, determining the best stocks to buy within a Stocks and Shares ISA can be a difficult process. As such, following the advice of Buffett, one of the world’s most successful investors, could be a sound move. He has accumulated a vast portfolio of shares following simple investment principles, such as seeking to buy high-quality companies while they trade on low valuations.

Assessing the quality of a stock is highly subjective. However, Buffett focuses on the economic moat a company enjoys. This essentially means he aims to buy companies that have a competitive advantage over their sector peers, whether due to brand loyalty, a lower cost base, or any other advantage which means they can deliver higher levels of profitability in the long run.

Buying companies with wide economic moats at low prices can lead to high returns in the long run. This often involves purchasing their shares when risks facing the wider economy are relatively high. Since the world economy faces an uncertain period at present, due in part to the potential impact of tariffs, a number of companies could offer low valuations. This may mean now’s the right time to add them to your ISA, with their long-term return prospects appearing to be high.

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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.

Motley Fool UK 2019