Should you be holding on to cash? It’s a question many consumers have been asking in recent months thanks to the world’s most famous investor.
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Warren Buffett’s conglomerate, Berkshire Hathaway, has a huge cash pile amid its stock-selling spree. But just because the renowned financial guru is holding on to cash, it doesn’t mean everyone should be doing the same.
Here’s a look at some reasons why Buffett is making those moves with cash and stocks, and some things to consider for your own finances.
Buffett and the Cash
The cash pile for Berkshire Hathaway topped $300 billion in the third quarter. Buffett has been selling stocks so much this year that the Berkshire Hathaway cash balance reached record levels.
Amid fears of a recession, it’s helpful to note that Buffett doesn’t sell due to economic conditions or predictions. He has drawn attention, though, for selling off shares of big companies like Apple and Bank of America. Instead of loading up on new companies, Berkshire Hathaway is holding onto a cash load.
“It has added Ulta Beauty to its portfolio recently, but for the most part, Berkshire hasn’t been buying up shares of other stocks,” according to the Motley Fool. “This could be a sign that Buffett isn’t seeing tremendous buying opportunities right now, perhaps because valuations have become too inflated.”
CNBC reported that Buffett’s cautious approach aligns with a year of strong stock market performance driven by optimism about a smooth economic recovery, easing inflation, and potential interest rate cuts by the Federal Reserve. However, recent trends, such as the 10-year Treasury yield surpassing 4% last month, suggest interest rates have not consistently followed expectations.
Other well-known investors have expressed concerns about the rising fiscal deficit. Buffett hinted he sold some stock holdings thinking that tax rates on capital gains would be increased to help with the growing deficit.
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Your Cash and Options
For your own financial picture, how much sense does it make to hold on to cash? The answer may greatly depend on your finances and your goals.
You may see cash as a safer option than things such as stocks or bonds. The stock market has big ups and downs, which can hurt your cash if you’re thinking in short-term options.
However, according to J.P. Morgan, “Cash comes with an opportunity cost – by sitting in cash, investors may miss out on the potential upside stocks could see in a soft landing, lack the protection that bonds can offer if a recession does happen, and lose out on the inflation protection that real assets have.”
Experts at J.P. Morgan suggest you take a step back and look at your overall financial picture. You can think about how much liquidity you need. You can also review your money goals. If you determine you have excess capital in cash and cash equivalents, you could look at many options from low risk to high risk to see what may give you higher returns as a long-term investor.
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This article originally appeared on GOBankingRates.com: Warren Buffett Is Holding On to Cash — Should You?
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
