Billionaire Warren Buffett told CNBC on Monday that investors should not reach for yield beyond their risk-tolerance, even with interest rates so low and stocks seemingly like the only place to get a return.
“If you need to get 3% and you can only get 1%, the answer is … you should always adapt your consumption to your income,” Buffett said on “Squawk Box,” following Saturday’s release of his annual letter on how the businesses of Berkshire Hathaway performed and his views on investing.
“Reaching for yield is really stupid. But it is very human,” he said, delivering sobering advice to folks near or in retirement. “People say, ‘Well, I saved all my life and I can only get 1%, what to do I do? You learn to live on 1%, unfortunately.”
“You don’t go and listen to some salesman come and tell you, ‘I’ve got you some magic way to get you 5%,” he added.
Individual investors and institutional investors alike are chasing yield and that could have major “consequences over time” on financial markets, Buffett warned.
“It builds in slowing. People going crazy tech companies in the tech 1990s,” he said, referring to the boom and eventual bust of the dotcom bubble. “It can take a lot longer than you think. But eventually you get to midnight and everything turns to pumpkins and mice.”