Warren Buffett outlined a simple investment strategy in his 2013 Berkshire Hathaway shareholder letter for the trustee managing his wife's inheritance. The 90/10 plan calls for placing 10% of assets in short-term government bonds and 90% in a low-cost S&P 500 index fund.
Buffett recommended Vanguard's funds for this approach. "My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund," he wrote in the letter. Buffett reiterated this recommendation in his 2016 shareholder letter.
The strategy offers two components. Short-term government bond funds invest in low-risk bonds that provide cash flow and typically yield more than bank savings accounts. The S&P 500 index tracks roughly 500 of the largest U.S. companies weighted by market capitalization, and index funds tracking it provide broad diversification with minimal effort and low fees.
Specific fund options include the Vanguard Short-Term Treasury ETF (VGSH) with a 0.03% expense ratio, the Vanguard Total Bond Market ETF (BND) at 0.03%, and the Fidelity 500 Index Fund (FXAIX) at 0.015%. On a $10,000 investment in FXAIX, annual fees total about $1.50.
The 90/10 split does not suit all investors. Younger savers with decades until retirement may prioritize stocks over bonds. Those approaching retirement may prefer more bond exposure for predictable cash flow and lower volatility. Target-date funds automatically shift from stocks to bonds over time based on a retirement year.