Billionaire investor Warren Buffett is on the verge of an unusual dilemma. Berkshire Hathaway, the holding company he took over in 1970, has just under $100 billion in cash on its hands as of the end of the second quarter, Bloomberg reports. And that's a problem.
Because the company hasn't made any major acquisitions in a while, cash is piling up. While it shows the immense success of the businesses Berkshire has acquired over the years, that fortune could be working much harder for the company: It could double or triple in value if invested well.
According to Bloomberg, Buffett "addressed the mounting cash pile at Berkshire's annual meeting in May, saying he hadn't put his 'foot to the floor' on an acquisition for a while and shouldn't keep so much money earning next to nothing for long periods."
If history is any indication, things will work out for Buffett. And though few outside the finance world might care about the implications of a multibillion-dollar company with too much cash on hand, the dilemma illustrates a critical concept that anyone can put into practice: Don't overload your savings account with cash. Start investing.
Traditional savings accounts hover around 0.01 percent annual returns. And though high-yield accounts a offer better return of about 1 percent, that's nowhere close to the stock market.
"Over the past 10 years, even including the financial crisis, stocks have returned an average of 8.6 percent per year," Bankrate reports. It performed significantly better than real estate or cash investments.
Investors who start early and allow their funds to compound over time typically end up with vastly more than they started with. CNBC explains, "If $100 is invested in the S&P 500 and it gains 10 percent in a year, that will generate $110, after another year it's $121 and after a third year it's $133."
That means that, with an average return rate of 10 percent, $10,000 invested today would be worth $450,000 in 40 years.
The other piece of Buffett's dilemma is that he's unsure what to do with the mounting cash, and that's a problem other savers can relate to as well.
Don't invest in anything just to say you've invested. Do your research and put your money in places that are right for you and your situation.
Although entering the stock market might sound scary, it doesn't need to be. Here are a few low-stress ways to start:
- Sign up for your employer's 401(k) plan and take full advantage of any company match, which essentially gives you free money.
- Contribute to a Roth IRA or traditional IRA, which are individual retirement accounts that offers tax breaks.
- Use micro-investing apps such as Acorns, which help you begin by investing small amounts of your "spare change." The app rounds up your purchases to the nearest dollar and automatically put your coins to work.
- Try other apps that aim to make investing simple and accessible.
- Consider automated investing services known as robo-advisors that can help you out no matter how much you have in the bank.
- Research low-cost index funds, which Warren Buffett himself recommends.
It's important to note that there's no guarantee how the market will perform in the future. Your returns will vary based on which accounts you choose, when you start investing and how much you contribute.
But if you're looking for high returns, you may want to try the method that's been proven reliable. And the earlier you get started, the better.
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