Warren Buffett Still Doesn’t Like Bonds. Here’s Why. (2024)

FAQs

Warren Buffett Still Doesn’t Like Bonds. Here’s Why.? ›

Berkshire Hathaway's investment portfolio that supports its huge insurance business is heavily tilted toward stocks and cash. The company's bond portfolio is trivial in comparison. Insurers invest the proceeds from insurance premiums and earn returns on those investments before paying out any claims.

“It's quite clear that stocks are cheaper than bonds,” Buffett said at an appearance back in 2010. “I can't imagine anybody having bonds in their portfolio when they can own equities, a diversified group of equities.”

Berkshire Hathaway's portfolio includes a significant amount of short-term bonds, despite its leader's infamous public position. Speaking to CNBC's Becky Quick on Aug. 3, 2023, Buffett admitted: “Berkshire bought $10 billion in U.S. Treasurys last Monday. We bought $10 billion in Treasurys this Monday.

Bonds lower volatility but have significantly higher inflation risk when compared to shares. The risk of inflation destroying the purchasing power of your portfolio is one of the biggest risks that you face as an investor.

When the Federal Reserve raises the federal funds rate, it can cause the bond market to crash. This happens because new bonds offer higher interest rates than previously issued bonds, and that pushes the prices of older bonds down in the secondary market. For bondholders, this is known as interest rate risk.

Bonds: Dave does not own any bonds and does not suggest them as part of your investment plan. People mistakenly believe bonds are "safe" investments that have slightly lower rates of return than equities. Single bonds can actually be very volatile and go down significantly in value.

Wealthy individuals put about 15% of their assets into fixed-income investments. These are stable investments, like bonds, that earn income over a set period of time.

The billionaire investor has made Bank of America one of Berkshire Hathaway's top holdings. Berkshire Hathaway (BRK. A 1.46%) (BRK. B 1.12%) is known for its massive $350 billion stock portfolio, as many of its positions were hand-selected by legendary investor CEO Warren Buffett himself.

Buffett therefore doesn't see any utility in owning gold because it can't produce things. Stocks can grow earnings and profits and pay dividends, and farmland produces fruits and vegetables that can be used and sold, but gold just sits there, waiting for someone to come along and decide to pay more for it.

The 60/40 rule, for example, dictates having 60% of your portfolio in stocks and 40% dedicated to bonds. Or you may use the rule of 100 or 120 instead, which advocates subtracting your age from 100 or 120.

Why shouldn't you invest all your money in bonds? ›

You can't get your money back at all the first year, so you shouldn't invest any funds you'll absolutely need anytime soon. Early withdrawal penalty.

Bonds are often touted as less risky than stocks—and for the most part, they are—but that does not mean you cannot lose money owning bonds. Bond prices decline when interest rates rise, when the issuer experiences a negative credit event, or as market liquidity dries up.

Bonds are considered as a safe investment & also come with some risks which are Default Risk, Interest Rate Risk, Inflation Risk, Reinvestment Risk, Liquidity Risk, and Call Risk. Investors who like to take risks tend to make more money, but they might feel worried when the stock market goes down.

As inflation finally seems to be coming under control, and growth is slowing as the global economy feels the full impact of higher interest rates, 2024 could be a compelling year for bonds.

If you own shares of a bond ETF, you might have a sinking feeling seeing the market value of your investment dip as interest rates increase. However, it's worth noting that rising interest rates can't last forever, and bond ETF prices are likely to recover once rates go lower.

Because they are considered safe investments, bonds often come with low yields. These low-interest rates are often considered unappealing by investors who seek strong returns or yields.

In an interview with CNBC in 2018, Buffett said, “There is an implicit promise that the dividend will continue to be paid and will not decrease.” And buying back Berkshire's own shares is often more beneficial to shareholders. Of the two, “we're probably leaning towards repurchasing,” he said.

Warren stays away from technology companies because he likes investments in which he can predict winners a decade in advance—an almost impossible feat when it comes to technology. Unfortunately for Warren, the world of technology knows no boundaries.