Why Warren Buffett's Wrong About Cash Right Now

Buffett thinks cash is a bad investment, but at times like these, it can be your best friend. Find out why here.

Jan 18, 2014 at 9:42AM

Warren Buffett is a smart investor, with plenty of smart tips for investors to follow. But even though Buffett has said that cash is a bad investment, its value right now is a lot higher than he might give it credit for having.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, talks about the value of cash in today's market. On one hand, Dan notes that while having some money in stocks makes sense, having all of your money invested can be riskier than is prudent. Even conservative investments Vanguard Dividend Appreciation (NYSEMKT:VIG) or Buffett-owned dividend stocks Coca-Cola (NYSE:KO) and Procter & Gamble (NYSE:PG) sport above-average valuations right now, introducing risk that threatens their margin of safety. Dan also points out that bond investments iShares 20+ Year Treasury (NYSEMKT:TLT) and Vanguard Total Bond (NYSEMKT:BND) carry risk of principal loss, something that can overwhelm their relatively weak yields right now. In that light, Dan concludes that holding cash right now isn't a bad move, even with the certain loss of purchasing power that will result at current rates.

Don't put everything in cash
Just because cash isn't a bad choice right now doesn't mean that you should pull out of the stock market entirely. Those who've stayed out of the market in recent years out of similar fears have missed out on huge gains and put their financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal-finance experts show you why investing is so important and what you need to do to get started. Click here to get your copy today -- it's absolutely free.

Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and Procter & Gamble and owns shares of Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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