With a whopping $348 billion in cash on his company’s balance sheet, it’s easy to assume Warren Buffett has no worries at all.
But in a recent meeting with Berkshire Hathaway shareholders, the legendary investor admitted that he’s worried about the eroding value of the currency in which that cash hoard is held.
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“We wouldn’t want to be owning anything that we thought was in a currency that was really going to hell, and that’s the big thing we worry about with the United States currency,” he said candidly.
Here’s why the Oracle of Omaha is getting anxious about the future of the greenback.
Dollar’s decline
Buffett’s concerns about the value of the U.S. dollar stems from his observations of the government’s spending under President Donald Trump.
Despite the Trump administration’s efforts to curb spending, the government spent $200 billion more in the first 100 days of Trump’s term than in the same period last year, according to CBS News analysis of U.S. Treasury data.
At the same time, Trump is proposing tax cuts.
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“Fiscal policy is what scares me in the U.S.,” Buffett said. “All the motivations are to do things that could cause a lot of trouble.”
The U.S. dollar index — a measure of the currency’s value against a basket of foreign currencies — has already dropped more than 8% since the start of the year.
The Bipartisan Policy Center notes that a higher national debt (which could result if the government spends more while at the same time reducing income taxes) undermines U.S. creditworthiness and devalues the dollar.
Any further erosion in the dollar’s value could impact your purchasing power. There are ways to protect yourself.
3 ways to protect yourself
If you’re worried about the value of the U.S. dollar and its impact on your portfolio, there are assets that could insulate your wealth.
1. Gold is a good option. Investors tend to see the yellow metal as a safe haven in times of uncertainty.
This year, the asset class is certainly living up to its reputation. An ounce of gold is up more than 20% in the past six months, currently trading for over $3,300.
You don’t need to buy bullion to add exposure to this asset class. Instead, consider an ETF like SPDR Gold Shares (GLD).
2. Add exposure to real estate through a real estate investment trust, or REIT. [Realty Income (O)](https://www.realtyincome.com/ is a REIT with 15,600 properties in all 50 U.S. states, the U.K. and six other countries in Europe.
The stock is up 6.76% year-to-date, which means it has outperformed the S&P 500 over the same period. The stock also offers a 5.66% dividend yield, which is an added bonus for investors.
3. Consider niche hard assets to bolster your portfolio. Digital Realty (DLR) is a real estate trust that focuses exclusively on data centers across the world.
The firm manages a portfolio of over 300 data centers across more than 25 countries. Although the stock has lost 5.88% of its value year-to-date, its 2.9% dividend yield buffers some of those losses.
The company is also likely to benefit from the growing need for data centers to power the AI revolution, which should minimize the impact of U.S. dollar weakness.
Like Buffett, taking a cautious and defensive approach to your portfolio could help you sail through the ongoing volatility.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
