Gold Has Hit Record Highs, but This Is Why Warren Buffett Still Prefers Stocks Amid Market Turmoil

The S&P 500 has been crashing this year, and amid that panic, investors have been piling money into gold. Often seen as a safe haven, gold usually attracts investors in times of fear, with the belief that it can be a safe place to park your money amid market uncertainty.

However, before you decide to do that, you should consider what billionaire investor Warren Buffett thinks about gold and why he isn't convinced that investing in it is a good strategy.

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Why Buffett isn't a fan of gold

In a letter to Berkshire Hathaway shareholders in 2011, Buffett noted the following reasons as to why he isn't particularly thrilled with gold as an investment:

• There is limited demand for gold beyond just "some industrial and decorative utility."
• It does not produce anything, and "if you own one ounce of gold for an eternity, you will still own one ounce at its end."

Buffett recognizes the popularity of gold amid a panic in the markets but does not see it as a great long-term investment. Instead, he prefers to invest in what he refers to as "productive assets," including not only companies but also real estate and farms. Buffett has long been bullish on the U.S. economy and its ability to continue to grow. His investing strategy has allowed him to generate incredible returns, often outperforming the S&P 500, which is an index of the largest and most successful companies in the world.

Gold has hit record levels, but investing in the market may still be the better option

Historically, the S&P 500 has averaged an annual return of around 10%. Over the past decade, its total returns (which include reinvested dividends) are far superior to just holding gold.

Gold Price in US Dollars data by YCharts

The delta between these two different investment options would be far greater if not for the S&P 500's crash this year. There may be temporary periods, such as in the early stages of 2020, where a drop in the market value brings the index's returns similar to that of gold. However, in the long run, investing in the stock market does appear to be a much better option for investors.

Investors should consider staying in the market and holding a diverse mix of stocks

It can be worrisome to invest in stocks these days. But don't forget that Buffett has remained invested amid even worse circumstances, holding onto stocks for decades. His long-term view has allowed him to drown out and ignore the noise that comes with short-term market fluctuations.

Even if you're not sure what to invest in, putting your money into an exchange-traded fund (ETF) that tracks the S&P 500 can be a good option. The SPDR S&P 500 ETF Trust (NYSEMKT: SPY) allows you to do just that while charging you minimal fees -- an expense ratio of only 0.09%. The fund provides you with an easy way to benefit and profit from the stock market's long-run growth and can help you keep your risk relatively low.

While the near term may not look all that encouraging for the market amid trade wars and tariffs, it's not a reason to remain down on it over the long haul. Government policies can and will change over time. The ability to buy into the S&P 500 while the market is in a downturn can set you up for some significant gains years from now. The market has always recovered, and there's no reason to expect that will change this time around. It may take time, but investing is all about having patience.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.