Warren Buffett is Stockpiling Cash: Should You?

NEW YORK (MainStreet) — Warren Buffett has been quietly building a fortress of cash in the Berkshire Hathaway investment portfolio. The mammoth conglomerate's latest quarterly report, released Friday, reveals a staggering $55 billion on the sidelines – more cash than has ever been parked in the portfolio's history -- and twice as much as Buffett claims he likes to keep on hand. Is the stock market that overheated? Should you be moving to cash as well?

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Admittedly, Berkshire Hathaway is not your typical portfolio. An asset gorilla among puny money-running monkeys, its every move is carefully noted and quoted. There are simply few companies large enough to warrant its attention, and Buffett refuses to pay out a dividend to investors and rarely buys back shares. With a lack of suitable investment candidates, Buffett is content to lie in wait for a suitable prey.

But it's not only Warren Buffet. Mutual funds have been moving to cash for some time now. Morningstar notes that the average mutual fund now holds a cash balance of more than 8%, the highest allocation since late 2005. With rising volatility and potential "investor fatigue" setting in, market watchers are seeing a flight from risky assets.

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"Stock prices are lofty and not a lot of bad news is priced in to the market," writes Russ Koesterich, senior investment strategist for BlackRock, in an analysis. "Even with decent earnings, it appears that investors are getting nervous. Although the U.S. economic recovery appears to be gaining steam, lofty stock prices and rising geopolitical risks are finally taking a toll."

Private equity firms are also sitting on reserves.

"Capital available to private equity fund managers is currently standing at a record high with $1.16 trillion available for investment, representing an 8% increase from December 2013," says London-based Preqin Ltd., in a quarterly update.