Warren Buffett Warns, 'Cash Is Always A Bad Investment' Because It's Sure To Go Down In Value – Having A Surplus Makes Him 'Unhappy'

Berkshire Hathaway, the investment behemoth led by Warren Buffett, surprised many in March 2024 by holding a record-breaking $168 billion in cash. Buffett has a long-standing and well-documented aversion to cash as an investment strategy. He disagrees with the adage “cash is king.” 

In a 2009 interview with Charlie Rose, Buffett asserted that cash is a poor choice for investors looking to safeguard or grow their wealth. “Well, cash is always a bad investment. When people say ‘cash is king', that's crazy," he said, adding that it is "sure to go down in value over time." He likened cash to oxygen — essential in sufficient amounts for security but unproductive and depreciative when stockpiled.

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Buffett’s argument is rooted in the inherent nature of cash to lose value over time because of inflation and its failure to generate returns. “Cash wasn’t producing anything and it was sure to go down in value over time,” he said, highlighting the non-productive aspect of cash holdings. 

For Buffett, maintaining an adequate level of liquidity is crucial; however, excessive amounts are unnecessary and bothersome. “We will always have enough cash around, but anytime we have surplus cash around, I’m unhappy,” he said.

Rose questioned whether all assets serve as a hedge against the dollar’s depreciation. Buffett concurred, noting that almost all assets could be considered as such because the value of the dollar — and most currencies — is expected to decline over time. “All you know is that the dollar is going to be worth less 10, 20, 30 years from now,” Buffett said.

The core of Buffett's perspective on the declining value of the dollar centers on monetary policy and supply. He said that printing more dollars in relation to the goods available diminishes the dollar’s value. This concept was illustrated with a hypothetical scenario where if every household suddenly received a significant amount of cash, it would initially feel beneficial but would ultimately depreciate assets denominated in dollars.

Buffett’s views on cash might surprise some, but his core message is a valuable reminder: strategic asset allocation is key. A diversified portfolio helps weather economic storms. Cash might feel safe, but inflation reduces its buying power. A financial expert can help you craft a personalized investment strategy that balances security with growth potential.

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