Warren Buffett has 1 simple test to spot a ‘perfectly satisfactory’ asset — how to shockproof your nest egg

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The stock market has taken a hit in recent weeks, as escalating trade tensions under President Donald Trump have rattled investor confidence. Many are worried about the fate of their finances.

But investing legend Warren Buffett has a simple test to help cut through the noise — and spot what truly counts.

In a 2018 interview with Yahoo Finance, Buffett said there are two types of things people buy: one qualifies as a real investment — the other, not so much.

The test to tell the difference is simple. If trading were banned for a period of time, would the asset still hold up?

Buffett walked through how that works with some examples.

“If you buy something — a farm, an apartment house or an interest in a business — and look to the asset itself to determine whether you’ve done something, what the farm produces, what the business earns, and so on, you don’t really care whether the stock market’s open,” Buffett said. “You look at the investment itself to deliver the return to you.”

Simply put, the kinds of assets Buffett sees as real investments produce returns on their own. They don’t need an open market — or a future buyer — to be worthwhile.

That’s not the case with more speculative assets. As Buffett explained:

“Now, if you buy something like Bitcoin or some cryptocurrency, you don’t have anything that’s producing anything. You’re just hoping the next guy pays more — and you only feel you’ll find the next guy to pay more if he thinks he’s going to find somebody that’s going to pay more.”

Buffett’s philosophy can offer peace of mind. Markets are inherently volatile. Even high-quality assets can swing wildly in price. But if your investment doesn’t depend on being sold to someone else to deliver value, you can worry less about the day-to-day ups and downs.

He summed it up clearly: “If you ban trading in farms, you could still buy farms and have a perfectly decent investment.”

Let’s take a closer look at the kinds of assets that pass Buffett’s test — and how you can get in on them.

Buffett may not be known as a real estate investor, but he often uses real estate to illustrate what a productive, income-generating asset looks like.

In 2022, Buffett stated that if you offered him “1% of all the apartment houses in the country” for $25 billion, he would “write you a check.”

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Why? Because regardless of what’s happening in the broader economy, people still need a place to live and apartments can consistently produce rent money.

And you don’t need to be a billionaire investor to get in the game. Crowdfunding platforms, for example, allow everyday investors to own shares in rental properties without the large down payments or management headaches traditionally associated with real estate ownership.

Alternatively, real estate investment trusts (REITs) provide another avenue for those looking to gain exposure to this asset class.

Farmland is another asset Buffett likes to point to — and yes, it passes his test with flying colors.

Alongside his comment about apartments in 2022, he also stated: “If you said … for a 1% interest in all the farmland in the United States, pay our group $25 billion, I’ll write you a check this afternoon.”

Just like housing, farmland meets a basic human need. No matter what’s happening in the markets, people still need to eat. That consistent demand makes farmland a resilient, long-term asset — and often a hedge during times of economic uncertainty.

Getting exposure to this space is easier than you might think. Publicly traded REITs allow investors to participate in the sector without owning or managing farmland directly.

When it comes to advice for everyday investors, Buffett suggests one simple thing: an S&P 500 index fund. These are investment funds that offer broad exposure to the S&P 500 — the top stocks listed on U.S. exchanges.

Such a straightforward approach gives investors instant diversification without the need for constant monitoring or active trading.

Buffett’s belief in this strategy is so strong that in 2013 he shared that his will instructs 90% of his wife’s inheritance be invested in “a very low-cost S&P 500 index fund” after his passing.

The beauty of this approach is its accessibility — anyone, regardless of wealth, can take advantage of it. Just keep in mind that, while the S&P 500 has a healthy average annual rate of return, past gains don’t guarantee future returns. There may be rough times ahead, but long term, tracking the index can provide results.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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2025-04-05 10:01:00