Money

Why Is Warren Buffett Holding a Record Amount of Cash?

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Last week, I talked about the best places to keep your short-term cash, including Treasurys and certain certificates of deposit (CDs).

Perhaps Warren Buffett is a Wealthy Retirement reader, because his firm, Berkshire Hathaway, is holding more cash in Treasurys than ever before: $189 billion. (As they used to say in the old New York state lottery commercial, “That’s a lot of bread!”)

Interestingly, the only time Berkshire’s cash stash has declined since 2016 was in 2022, when the market had an awful year and dropped by more than 19%. That tells us that as the market was falling, Buffett was putting money to work.

Chart:

And that wasn’t the first time he’s jumped into action during a downturn.

Berkshire’s piles of cash allowed it to rescue Goldman Sachs during the global financial crisis and Bank of America in 2011 by investing $5 billion in each. Buffett’s returns on those investments have been huge, as he was able to leverage the big banks’ struggles to negotiate favorable deals.

You may not be in a position to bail out financial institutions that manage trillions of dollars, but you can use Buffett’s techniques to make sure you get in while the gettin’s good.

The market is at all-time highs right now, so hopefully you’re well invested. But you should maintain some flexibility too. Regardless of where the market is trading, I always keep some cash on the sidelines in case a big opportunity presents itself.

Usually, that opportunity comes by way of a market sell-off.

Sometimes it’s a bear market that lasts a year or two. Other times, it’s a quick sell-off like the one we saw during the early days of the pandemic.

When the market falls – especially when it falls quickly – that tells me it’s time to put my money to work.

Now, let me be clear: Buying during a downturn is scary as heck. As I’m buying, I often wonder if I’m putting my money into a paper shredder. But it usually works out. Sometimes I’m a bit early, but over the long term (and sometimes the short term too), these investments end up being the smartest ones I make.

I don’t know if Warren Buffett’s $189 billion in cash means he’s concerned about a crash or worried that the market is overvalued. But I do know that when things eventually do come down, Berkshire will be there to swoop in and bail out a quality business that’s having some trouble – and it’ll do so at a bargain price.

You can do the same by keeping some cash ready to deploy when the spit hits the fan. And after years of earning nothing on your cash, you’ll finally be able to earn a meaningful interest rate in the meantime.

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