Quora Answer: What is Warren Edward Buffet’s Opinion of Bonds in a Retirement Portfolio?

The following is my answer to a Quora question: “What is Warren Edward Buffet’s opinion of bonds in a retirement portfolio?”

On Monday, the 25^th February, Warren Edward Buffet gave a wide-ranging interview with CNBC, discussing his annual shareholding letter and investment outlook.  He said, “If I had a choice today for a 10-year purchase of a 10-year bond at whatever it is, or buying the S&P 500 and holding it for 10 years, I would buy the S&P in a second. Interest rates govern everything, and if there were a way to short 30-year bonds and own the S&P for 30 years, I would give you enormous odds that the S&P is going to beat 30-year bonds.”

On the 06^th May, in a second interview with CNBC to discuss why Berkshire Hathaway had US$110 billion cash on hand, he said, “I would much rather own many common stocks than bonds. We would much rather own the business of America than get a 3% for 30 years from the government.”  He also said, “Stocks actually, in many cases, look like perfectly intelligent investments.”

In none of these interviews was he talking about any retirement portfolio for individuals.  He was talking about Berkshire Hathaway’s bullishness on the US domestic business environment in light of reports of an economic slowdown.  He explained that he has that cash on hand for acquisition, but because they could find no value in the market, they bought back their own stock to shore up value.  This was after the massive Kraft-Heinze write down.

If you are asking about your own retirement portfolio, then what Warren Buffet thinks about it is irrelevant since he operates on a different economy of scale.  That would be like a small fishing boat trying to cross the ocean with the cargo liners.  What would be a minor swell to the cargo liners would sink the fishing boat.  Depending on your investment horizon, meaning how close you are to retirement, the need for bonds differs.  If you are close to drawing down your retirement, then bonds are good in a volatile market to protect your nest egg.  If you have an extended horizon, then a weightage towards equities would be better.  If you have a low risk tolerance, then despite the investment horizon, bonds and debt instruments are better in this turbulent market.