Warren Buffett Says This Is the Worst Investment You Could Ever Own

Warren Buffett has had a remarkable track record of making timely and smart investment choices. And while most of his advice to investors revolves around the super-simple ways you can get solid returns, one very important piece of advice from Buffett is often overlooked. There is one long-term investment option that the Oracle warns should never be in your portfolio: a hoard of cash.

Crowd favorite
In a recent report from Bankrate, a survey of Americans found that cash was the favorite long-term investment option for funds that were available for 10 years, with 26% of the respondents choosing cash investments. Only real estate came close to matching the popularity of cash, with 23% of people choosing that option for their hypothetical investment. Stocks came in fourth (after gold and other precious metals), at 12%.

Unfortunately for the majority of those surveyed, and the portion of the nation's population that they represent, cash is a very poor investment choice. Here's Mr. Buffett on the subject:

"The one thing I will tell you is the worst investment you can have is cash. Everybody is talking about cash being king and all that sort of thing. Cash is going to become worth less over time... Cash is a bad investment over time."

The King is dead
If you look at the long-term returns of cash versus other investment options, you'll see why Buffett thinks it's the worst investment you could choose:

Source: BlackRock.

Just as Buffett says, cash will be worth less over time because of inflation. And even in developed economies, like the United States, where inflation is low, the cost of goods and services still outpaces the returns of cash investments. Some of the best savings account interest rates are centered in online-based accounts, but they still only provide an average of 0.85% in interest. While it's true that inflation will cut down the value of any asset over time, cash is the only one that has actually lost value -- as you can see in the chart above.

Timing is everything
This advice from Buffett should be heeded by more than just those years away from retirement. With Americans living longer, most retirees fear the same thing: running out of money. And while that fear can lead them into various "safer" investments, choosing an all-cash approach could be self-fulfilling prophecy. Retirees can live anywhere from 10-40 years beyond their retirement date, and unlike those still working, a fixed income can be very difficult to stretch across all sorts of expenses. So Buffett's advice is just as relevant to retirees as it is to 20-somethings.

Let's be clear
Though Buffett warns against the use of cash as an investment, he does state that it's important to have some on hand.

"We always keep enough cash around so I feel very comfortable and don't worry about sleeping at night. But it's not because I like cash as an investment. Cash is a bad investment over time. But you always want to have enough so that nobody else can determine your future, essentially."

Having an emergency fund or back-up savings account is not something Buffett would shake a finger at -- quite the opposite, in fact. But he would warn against letting your stash get too big. Otherwise, your money isn't working for you as you try to achieve your financial goals.

More where that came from
A warning about holding cash doesn't even scratch the surface of the wisdom Warren Buffett has shared with interested investors. He has made billions through his investing, and he wants you to be able to invest like him. Through the years, Buffett has offered up investing tips to shareholders of Berkshire Hathaway. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.

Read/Post Comments (16) | Recommend This Article (54)

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  • Report this Comment On January 12, 2014, at 3:04 PM, anrbfan wrote:

    "Warren Buffett has had a remarkable track record of making timely, and smart, investment choices."

    Yeah. Like the time he lost $7 BILLion in ONE DAY during the 1987 Stock Market Crash!

    Follow his advice at your peril.

  • Report this Comment On January 12, 2014, at 3:09 PM, Mathman6577 wrote:

    Cash is needed for emergencies.

  • Report this Comment On January 12, 2014, at 4:14 PM, mwcwew wrote:

    Warren Buffett is the supreme inside trader---There's nothing smart about him---he wants smart people to move their cash---back into the market---so he and his buddies can steal it--again---and again---Never listen to this fool---remember---he supported Obama.

  • Report this Comment On January 12, 2014, at 4:59 PM, TreyAnas wrote:

    Yes, some cash is needed for emergencies. Buffett (Berkshire) always has a fair amount of cash on hand. For emergencies, especially in the insurance businesses, and for opportunities.

    But cash is no place to put the bulk of your money as a long-term investment.

    As for you other Buffett haters: Consider his 50-year track record for transparency, ethics, and investment returns. Find another investor with a better combined score on those metrics over a 20- or 30- year period. He's a very smart guy (but human), very ethical (but human), and has delivered unparalleled results over his career.

  • Report this Comment On January 12, 2014, at 11:03 PM, GetReal wrote:

    Have to agree with TreyAnas. The three other hater trolls posting here sound like they are not well informed as to Mr. Buffett's skills or his integrity.

    Anrbfan, the losses (unrealized) that Berkshire Hathaway saw on Black Monday were short lived and the value of Berkshire Hathaway returned to normal in a very short. You only lose if you sell. Get a clue.

  • Report this Comment On January 13, 2014, at 5:57 AM, BDF958 wrote:

    He is wrong. Do not care what his name is.

    Is is presuming people have the wisdom to understand risk and reward and will make the best choice. They will not.

    In a perfect world, with someone like him, his ability to invest in something and make instant $ because of the "rock star" status he has, then yes, cash would be silly.

    This is that bias for action thing that has been studied over and over; better to do something than nothing.

    But for me, in a risky environment, OK with cash and keeping eye on Inflation.

    I will be 100% invested when he provides me with a backstop protecting me from my stupidity. Our investing is a backstop for HIS decisions.

    We need to all realize that the more idiots there are in the market, the better things look for people like him. This is a sage mascerading as grandad giving you good advice.

  • Report this Comment On January 13, 2014, at 6:11 AM, jamespdunn wrote:

    The reality is in this market no place feels very safe. Bonds are riskier and don't behave like they have historically. Buffet is one of the great investors. But he is flaws like all of us. The smartest thing I've ever heard him say is that he buys when people are scared and sells when they are greedy. But that's just a step up from buy low and sell high.

  • Report this Comment On January 13, 2014, at 1:44 PM, OScammieeyou wrote:

    Obama was never intended to function as it was sold to American public-it is rigged as a spoof phishing scam to gather data otherwise unattainable under Federal H.I.P.A. now snookering the unsuspecting public the weakest and vunerable into opening up once sealed medical files diverted in the process to Obama's own personal use that of which allowed him to issue directives to FDA to fast track approvals for any bio tech companies working on drugs targeting these illnesses in which teh President's blind investment trust takes insider position the efficacy of drugs being tested never at issue as FDA is not a scientific research org. but an political device as past FDA insiders along with bio tech doctors and scientists have been charge with insider trading over the years only that semblance of a cure be made for a quick buck.

    Obama will leave office the wealthiest man on Earth while taxpayers who cant afford insurance fund his exploits.

  • Report this Comment On January 17, 2014, at 3:15 PM, t0bes wrote:

    Wow, this article certainly attracted the crazies.

  • Report this Comment On January 17, 2014, at 3:26 PM, AFMS wrote:

    Buff makes a good point.. I didnt know he was a president Hussein supporter though. Grrrrrrrrrr!

  • Report this Comment On January 17, 2014, at 5:18 PM, jlclayton wrote:

    Warren Buffet has made billions by using a simple method of buying and holding great companies that he can understand. It's amazing how many people would rather believe he's a lying, scheming inside trader just because they don't have the discipline or or are willing to find the knowledge to do what he did. It's also amazing how many people can't read a simple article on investing without political tirades about things they don't even have facts on.

  • Report this Comment On January 20, 2014, at 4:38 PM, Kirk2013 wrote:

    The monetary policy of the Feds serves only the sinful borrowing of our elected government that benefits from cheap money. Ma and Pa can no longer be in the Savings Passbook game as the returns for having saved and gone without are nil. Go without what a concept. The Bible was generational, Our Policy now is selfish,and unsustainable , History shows many Rulers and Governments long gone to the grave yard . Buffet is right about cash a guaranteed way to loose. When the whole system collapses it won't matter where your earthly treasure is stored.

  • Report this Comment On January 21, 2014, at 6:44 PM, colin112 wrote:

    I'll bet that hasn't stopped him from hoarding lots of "cash" in his bank account.

  • Report this Comment On January 24, 2014, at 11:30 AM, John1981 wrote:

    How has this got anything to do with Obama Healthcare??? Either these are bots or extremely stupid people.

  • Report this Comment On January 24, 2014, at 11:34 AM, John1981 wrote:

    I have to say its cheeky how TMF makes these articles read like they are from Warren Buffet in some way, which are not, they are simply using old quotes of his and data from Blackrock....

  • Report this Comment On January 24, 2014, at 12:58 PM, gordonwallred wrote:

    Yes, Warren Buffett is SO stupid! I want to take investment advice from SMART people like above anonymous internet posters "anrbfan" and "mwcwew," who surely have better knowledge, skill, talent, and most importantly a far superior (and longer!) track record of market-beating results than that idiot Warren Buffett.

    After all, Mr. Buffett is only the greatest investor in history whose record of success speaks for itself, having clobbered S&P returns for some 30-plus years. In addition to his incomparable record of success, he is known to be a philanthropist, intellectual, family man, and overall beloved character. So, random internet trolls, please bugger off unless you can come up with something even borderline reasonable to say. This site is the wrong site for the inane silliness you posted above.

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