Buffett Watch

Buffett: When choosing between stocks and bonds 'I would choose equities in a minute'

Key Points
  • Warren Buffett believes long-term investors should buy stocks over bonds.
  • "If you had to choose between buying long-term bonds or equities, I would choose equities in a minute," he tells CNBC.
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Buffett: I'd choose equities over bonds

Warren Buffett believes long-term investors should buy stocks over bonds.

"If you had to choose between buying long-term bonds or equities, I would choose equities in a minute," he told CNBC's "Squawk Box" on Monday in a wide-ranging interview. "If I were going to own a 30-year government bond or own equities for 30 years, I think equities will considerably outperform that 30-year bond."

"So far this year, we've been a net buyer" of stocks, he added.

In his annual letter to Berkshire Hathaway shareholders released on Saturday, Buffett blasted the belief that bonds were a lower-risk investment over the long term. He recommended investors stay in equities due to the negative impact from inflation on the purchasing power of fixed-income holdings.

"I want to quickly acknowledge that in any upcoming day, week or even year, stocks will be riskier — far riskier — than short-term U.S. bonds," he wrote. "As an investor's investment horizon lengthens, however, a diversified portfolio of U.S. equities becomes progressively less risky than bonds, assuming that the stocks are purchased at a sensible multiple of earnings relative to then-prevailing interest rates."

"It is a terrible mistake for investors with long-term horizons – among them, pension funds, college endowments and savings-minded individuals — to measure their investment 'risk' by their portfolio's ratio of bonds to stocks. Often, high-grade bonds in an investment portfolio increase its risk."

Buffett also spoke on these topics in the CNBC interview:

— I don't think Berkshire should avoid doing business with people who own guns
— The new GOP tax law benefits Berkshire and acts as a 'huge tailwind' for businesses
— 'We've bought more Apple than anything else' in the last year
_ There are three ways to go broke: 'liquor, ladies and leverage'

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