Warren Buffett walks the floor ahead of the Berkshire Hathaway Annual Shareholders Meeting in Omaha, Nebraska on May 3, 2024.
David A. Grogen | CNBC
Warren Buffett is sitting on a record amount of cash.
That’s not necessarily something everyday investors should emulate. If you have money on the sidelines, it may be time to rethink your strategy, experts say.
Buffett’s conglomerate Berkshire Hathaway, with a diverse portfolio of businesses, was sitting on a record $334 billion in cash at the end of last year.
Yet in a February letter to shareholders, Buffett told shareholders that “despite what some commentators currently view as an extraordinary cash position,” the majority of the money invested in Berkshire is in equities.
“Berkshire will never prefer ownership of cash-equivalent assets over the ownership of good businesses, whether controlled or only partially owned,” Buffett wrote.
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In hindsight, Buffett’s cash position looks wise, as Trump administration tariff policies have caused market turbulence.
Investors have also been thought to have a cash cushion. There is $6.88 trillion in money market funds as of the week ending April 16, according to the Investment Company Institute — even though higher interest rates have made it possible to earn more on cash.
Yet even as the markets have flirted with bear territory, experts still say it’s possible to have too much money on the sidelines.
A 60/40 portfolio beats cash in the long run
Boy_anupong | Moment | Getty Images
A traditional portfolio comprised of 60% stocks and 40% bonds almost always outperforms cash in the long run, according to recent JPMorgan Asset Management.
That is based on a classic 60/40 portfolio comprised of the S&P 500 index and Bloomberg US Aggregate Bond Index versus cash based on Treasury bills or a certificate of deposit equivalent, according to Jack Manley, global market strategist at JPMorgan Asset Management.
In looking at data over 1995 to 2024, the 60/40 portfolio beat cash on a one-month basis roughly 65% of the time, Manley said. On a six-month basis, that increases to 75% of the time. For one year, that climbs to 80% of the time. And by the time you hit 12 years, it’s 100% of the time, he said.
Yet in times of uncertainty, investors often feel safer in cash.
“When we think about investors making the wrong decisions — investing with their guts, not with their brains, where they are going to if they’re panicking — they’re going to cash,” Manley said.
How to balance cash and investing
In the stock runup of 2024, a “plain-vanilla version” of a 60/40 portfolio gained about 15%, according to new Morningstar research. The portfolio includes a 60% weighting in the Morningstar US Market Index and 40% in the Morningstar US Core Bond Index.
Yet a diversified portfolio of 11 different asset classes only gained about 10%, the research found. That included larger cap domestic stocks, developed markets stocks; emerging markets stocks; Treasuries; U.S. core bonds; global bonds; high yield bonds; small cap stocks, commodities; gold and REITs.
Major shifts in U.S. tariff policy may change how well those strategies perform going forward. Thus far in 2025, a diversified portfolio has held up better, with gold gaining about 32% this year, according to Amy Arnott, portfolio strategist at Morningstar. Meanwhile, commodities, global bonds and real estate have held up better than U.S. stocks, she said.
With interest rates higher, cash has been a better portfolio diversifier than Treasuries in recent years, according to Morningstar’s research.
Notably, those cash allocations are best held outside the portfolio in an emergency fund or for any large expenses that may come up in the next two years, Arnott said. Current retirees may want to have at least one to two years’ worth of portfolio withdrawals in cash, she said.
With current turmoil and market uncertainty, it’s important to remember that making radical shifts to your portfolio can often backfire, Arnott said.
“If you’ve had an asset allocation that was a good fit for your time horizon and your investment goals previously, it’s probably not a good idea to be making dramatic changes to that just because of all the uncertainty that’s going on right now,” Arnott said.
Investors who have an ample cash position to fit their needs do tend to feel more confident now, said Adrianna Adams, a certified financial planner and head of financial planning at Domain Money.
However, for those who already have a sufficient emergency fund, the best use for extra cash is typically in the markets, Adams said.
“I wouldn’t recommend holding cash if we’re using that account or allocation towards our long-term goals,” Adams said. “If we’re going to need the money in the next two years, then absolutely, we should keep it in cash.”
High-yield savings accounts tend to be a favorite among consumers for emergency funds, Adams said. However, individuals in high-income tax brackets may want to consider municipal money market funds that help limit the tax bills they will pay on the interest they earn on that money, she said.
