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Why Warren Buffett's Wrong About Cash Right Now

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.

Read/Post Comments (3) | Recommend This Article (4)

Comments from our Foolish Readers

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  • Report this Comment On January 18, 2014, at 10:36 AM, willy325 wrote:

    There is no "right now" for the stock market. No one can call the shots more than half the time. Real investors buy and hold great companies and reinvest dividends and grow wealthy over time.

    Just buy and hold until the story changes. Smart people know that a good deal of your returns are in dividends compounding over time.

    Today's "overvalued" great companies are not overvalued at all. Just wait a couple of years.

    Long term charts tell the real story.

  • Report this Comment On January 18, 2014, at 10:32 PM, jlclayton wrote:

    What difference does it make if the stocks in my portfolio are above valuation right now if they are good, solid companies that I plan to hold for a very long time? These stocks will be overvalued at times and undervalued at times depending up any number of things going on in the market.

    Invest your money when good quality companies are trading at fair value. When valuations are low, there will be more opportunities, and when valuations are high, there will be less opportunities. I've found that by doing this, the question of how much cash to keep on hand isn't an issue and it takes care of itself.

  • Report this Comment On January 29, 2014, at 9:32 AM, cbglobal wrote:

    Owners of US Treasuries have the risk of principal loss? So you think the USA is going to default for real; meaning not only interest but the principal as well? Since the USA can always just print the money, there is never a default risk.

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Dan Caplinger

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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