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'Equity investors have the wind at their back': Warren Buffet says shun bonds, stick with U.S. stocks

In his latest letter to Berkshire Hathaway Inc. shareholders, Buffett, 87, encouraged people to make easy choices and eschew high-fee fund managers

NEW YORK (Reuters) – Billionaire Warren Buffett prodded ordinary investors on Saturday to stay invested in U.S. stocks, ignoring price swings, guidance from people with fancy credentials and the temptation to load up on bonds.

Buffett said it is a “terrible mistake” for investors with long-term horizons – among them, pension funds, college and endowments and savings-minded individuals – to measure their investment “risk” by their portfolio’s ratio of bonds to stocks.

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Treasury yields have been rising since the start of the year, stemming from brewing inflationary pressures and massive bond supply to help fund U.S. President Donald Trump’s tax overhaul.

Higher rates have kept U.S. equity markets under selling pressure, as investors worry borrowing costs could hurt companies’ profitability. Earlier this month, stocks suffered their first 10 per cent pullback since early 2016.

High-grade bonds, he said, can increase the risk of an investment portfolio as inflation eats away at the return.

“There is simply no telling how far stocks can fall in a short period,” Buffett said.

“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.”

In 2014, Buffett said he plans to put 90 per cent of the money he leaves to his wife, Astrid, when he dies into an S&P 500 index fund, and 10 per cent in government bonds.