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

The Oracle of Omaha extends just another bit of golden investment advice.

Jan 12, 2014 at 10:25AM

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:

Cash Historical Returns

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.

Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.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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