investment in real gold than gold bullion and gold coins

Buffett And Dalio Disagree On Cash And Gold – Who Should You Follow?


It’s definitely a crazy COVID-19 time that we live in.

The US pumping in $3 trillion dollars into the market via Quantitative Easing Unlimited – which so happens to be $1 trillion more than the previous 10 years post the great financial crisis. The stock market is rallying, despite what looks to be a bleak economic outlook.

Many investors have been speculating on the potential devaluing on US dollars and many moving to alternative investments like gold.

With that in mind, we decided to take a look at what two of the most legendary investors today – Warren Buffett and Ray Dalio – have said about holding or sitting on cash and gold as part of your portfolio.

Let’s start with cash

Warren Buffett: Hold Cash, Time the Market

Buffett, who runs Berkshire Hathaway, is sitting on what he calls his Fort Knox.

With over $137 billion dollars or about 25% of total assets in cash equivalents like US Treasuries, it certainly has put a big drag on the entire portfolio, with him underperforming the S&P 500 over the last 10 years.

But Buffett remains adamant having stated that “Nothing Is Attractive” even after the market drawdown in March which quickly rebounded near pre-covid levels in January.

Buffett has always been a patient investor who only strikes and strikes big when once-in-a-lifetime opportunities open up. This means that if truly nothing is attractive, he’ll be more than happy to sit on the sidelines and wait.

Buffett has also reiterated that it’s better to buy a good company at a fair price than a fair company at a good price.

So it’s not that he’s looking to capitalise on all time lows, or anything like that, but instead finds good value in good companies.

So what does this mean for you?

If you’re a believer in timing the market and would like to follow Buffett’s style of investing, you’d have to shortlist your companies first (and these are companies you’d hold for at least 10 years) and not just look at price action or movements, but fair value on whatever metrics you look at.

Also – while waiting, keep money in High Interest Savings Accounts, Govt Bonds, or Money Market Funds so you can at least earn some interest on that.

Ray Dalio: Cash is Trash, Stay Invested and Diversified

You may be less familiar with Ray Dalio but he is credible enough to run the largest hedge fund in the world with a $160 billion assets under management.

Unlike Buffett, BridgeWater Associates’ Ray Dalio has consistently been critical of cash. Calling it “trash” as the long term return on cash is abysmal, and usually losing out to inflation.

Dalio believes in staying invested in the market and making sure you’re diversified. His famous “All-Weather Portfolio” has been a hallmark of his approach, and has the creds too. When backtested over any 3-5 period in history, it has rarely lost money.

Even in early April, right after sharp declines, Dalio doubled down on that statement, stating that people would be missing out when markets recover, which it did.

And now with near zero interest rates, plus a potential devaluation of the US Dollar, cash and its equivalents might really be trash.

What does this mean to you?

If you believe in time in the market (vs timing the market), you can just remain invested and make sure you’re diversified. Don’t hold a warchest as that implies you’re underinvested or under utilising funds.

Let’s talk about gold (and precious metals)

Buffett and Dalio both have their opinions, and they’re, again – almost at the opposite end of things.

Buffett: Gold Bear, Silver Bull

Famously known for saying that it just sits there looking pretty and you look at it, and it looks back at you, without being useful.

He instead, as the value investor he is, prefers Silver. In his opinion, it’s used far more industrially than gold and serves a very similar purpose in the portfolio. So he isn’t hating on the entire precious metals markets.

Dalio: Hold some gold

Dalio, on the other hand, has always recommended everyone’s portfolio to have some exposure to gold. And we can see why in recent times, with a gold bull run since Mid 2019 giving worried investors a place to hide and wait out the storm while not losing out on returns.

Gold is also negatively correlated against the US Dollar –   so if we think the dollar will fall, gold can be a good option.

Dalio believes that Gold could hit $2000/oz soon. In his all-weather portfolio, gold constitutes 7.5% of the portfolio which isn’t that small of an amount.

All this proves just one thing – there isn’t one ‘correct’ way to invest

Is Buffett a great investor? Of course. Is Dalio a great investor? Of course. No one is going to deny that. It’s entirely possible that two geniuses disagree with each other, the same way two no-names amateurs duke it out on a Reddits thread.

There are just so many ways to skin a cat, and probably even more ways to invest profitably.

For the vast majority of us retail investors, investing just our own humble pie for the better of our families’ lives, we have to learn to take “investing advice” from these legendary investors with a pinch of salt, and not as gospel truth.

After all our circumstances are vastly different from these investment sages/gurus/experts. We’re talking risk profiles, the need for income, retirement goals and of course, the access to investment tools.

Our single actions are inconsequential to the markets. For them, one breath and markets move.

You as an individual have to learn to find your own style of investing. The person you have to follow is not other than yourself.

Do your own research. Draw your own conclusions. As Bruce Lee (not an investor) famously said, absorb what is useful, discard what is not, add what is uniquely your own. It’s after all, your money and no one else’s.