Buffett: "The Worst Investment You Can Make..."

By Matthew Milner, on Wednesday, August 6, 2014

The sight of it can be intoxicating.

Even if it’s been left under a mattress for years, it smells as fresh as spring.

And if you have enough of it, you can “make it rain.”

I’m talking, of course, about cash.

We all have a special place in our hearts for it.

But if you listen to Warren Buffett – and we sure do – the more cash you have in the bank, the dumber you are as an investor.

Here are a couple of his quotes:

The one thing I’ll tell you is that the worst investment you can have is cash.”

Everybody is talking about cash being king and all that sort of thing. Cash is going to become worth less over time. Cash is a bad investment…

Yes, Warren: we know, we know – and you’re 100% right...

It’s just that there’s something so comforting about having it in the bank.

But let’s put our feelings aside for a moment and ask a simple question:

Where can we put our cash – whether it’s currently sitting in our sock drawer or wasting away at our bank – to get some yield?

It’s Like Trying to Find Bigfoot

According to a show I watched recently on the Discovery Channel, Bigfoot exists.

But I’m not going looking for him...

That would be as thankless a task as finding a bank that offers a decent yield.

Let’s face it: you’d be lucky nowadays to get 1% on a savings account. CDs are just as bad, and your money is locked up for months, if not years.

So where can we turn?



A Piggy Piggy Piggy Bank

One of the most exciting things about crowdfunding is the remarkable pace of innovation.

New investment options are cropping up constantly.

Here are three new ways, all using crowdfunding, to generate bank-busting yields:

1) Crowdfunded Real Estate

Just like a REIT, crowdfunded real estate allows you to invest in everything from skyscrapers and single-family homes, to apartment buildings and commercial office space.

You can find deals on sites like Realty Mogul and RealCrowd.

But unlike a REIT, there are fewer middlemen and lower fees. This adds up to high yields for investors.

How high? On Realty Mogul, the average yield since June 2013 has been a lofty 10.5%.

Try getting that from your bank.

2) Peer-to-Peer and Peer-to-Business Loans

And while we’re putting our cash to work, let’s not forget about sites like Lending Club and Funding Circle.

These sites are part of an online trend where individuals – regular people like us – pool our capital and lend it to others.

Since there’s no traditional bank involved, borrowers pay less, and lenders get higher yields.

I’ve been investing there for months, and while I lean toward conservative loans (i.e. to borrowers with higher credit scores), I’ve been averaging 8% returns.

If I were willing to accept more risk, I could do even better: The average overall yield at Lending Club has been nearly 10%.

Funding Circle works similarly, except loans are made to small businesses instead of individuals.

Average returns there have been about 5.7%.

That’s not a double-digit yield, but it sure is better than a stick in the eye – and not as thankless as leaving your cash in the bank.

3) Back Tomorrow’s Earners

Another interesting option comes from an innovative website called Pave.

We’ve written about it before, but here’s how it works in a nutshell:

Recent college grads, burdened with student loan debt, turn to investors like you for lump sum payments they can use to pay off their loans.

In exchange, you receive a percentage of their future earnings for 5 to 10 years.

One of the great things about Pave – other than the 7% to 9% annual returns – is that you can invest with as little as $500.

Heed The Great Oracle...

So while there’s comfort in cash, it’s a false comfort.

The fact is, while your money sits dormant in a piggy bank, inflation pummels the life out of it every day.

Investors who’ve listened to the Oracle of Omaha’s stock market predictions have done very well for themselves...

Perhaps we’d be well served to rescue the money from under our mattresses and heed his advice on this one, too.

Happy Investing!

Best Regards,
Matthew Milner
Matthew Milner


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Tags: Crowdfunding Income Realty Mogul Lendingclub Alternative Lending

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