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Legendary investor Warren Buffett has generated substantial returns for the shareholders of his company, Berkshire Hathaway. From 1964 to 2023, Berkshire delivered an overall gain of 4,384,748%.
Given that astonishing track record, one might assume that Buffett would want this successful trajectory to continue through his estate after his passing. However, the Oracle of Omaha has a different plan in mind.
In his 2013 letter to Berkshire shareholders, Buffett shed light on the directives he has included in his will.
“One bequest provides that cash will be delivered to a trustee for my wife’s benefit,” he wrote. “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.”
While this strategy is straightforward and doesn’t require constant monitoring or active trading, Buffett expressed a significant amount of confidence in it.
Here are a few ways you can take Buffett’s advice and apply it to your own portfolio.
Buffett’s preference for recommending index funds stems from his belief that stock picking is not an optimal strategy for average investors.
At the 2021 shareholders meeting, he stated frankly, “I do not think the average person can pick stocks.”
This is where index funds come into play. They can be a passive investment strategy accessible to everyone — even those without Buffett’s wealth.
In fact, even your digital nickels and dimes will suffice. There’s a popular app called Acorns that invests your spare change for you automatically.
All you need to do is sign up and link your cards, which just takes a couple of minutes. Then it’ll round up your recent purchases to the nearest dollar and invest the difference — your spare change — in a diversified portfolio.
This effortless strategy offers a practical and low-barrier entry into the world of investing.
It’s worth noting the S&P 500, Buffett’s preferred index fund for low-cost investing, surged 24% in 2023. By investing in an S&P 500 index fund, investors get exposure to 500 large companies across various industries.
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Remember, Buffett didn’t advise going all-in on the S&P 500. He also recommended allocating 10% of the cash to short-term government bonds.
Investing in short-term government bonds can be appealing for those seeking lower-risk investments or a stable, relatively predictable source of income. Furthermore, these bonds are more liquid than long-term bonds, making it easier for investors to access their funds without significant penalties or loss in value.
The optimal allocation hinges on one’s personal financial situation and the current stage of their investment journey.
If you want to capitalize on this consistency, you could work with SoFi to invest in ETFs or index funds that tap into the bond market. You can also pick out individual stocks yourself if you feel more confident in making market moves.
The platform is designed to help you learn investing as you go, with real-time investing news, curated content and the data you need to make smart decisions about the stocks that matter most to you. SoFi can even help create a personal watch list based on your interests.
This DIY approach allows you to invest with no commission fees in the stocks, index funds or ETFs you believe in. Plus, for a limited time, you can get up to $1,000 in stock when you fund a new account.
Ultimately, everyone’s financial situation is unique, characterized by different obligations, goals and risk tolerance.
While the dream of growing our savings alongside the S&P 500 is common, many Americans also face other financial responsibilities such as mortgages and student loans.
Ensuring you have enough money to meet current financial obligations and invest for the future can be a difficult task to tackle on your own.
If you want to ensure you’re maximizing your money, it could pay to speak to a qualified financial advisor.
Research from Vanguard shows that working with a financial advisor can add about 3% to net returns over time. That difference can become substantial. For example, if you started with a $50,000 portfolio, professional guidance could mean more than $1.3 million in additional growth over 30 years, depending on market conditions and your investment strategy.
Finding the right advisor is simple with Advisor.com. Their platform connects you with licensed financial professionals in your area who can provide personalized guidance.
A professional advisor can also help you determine how many years you have left to invest before retirement and assess your comfort level with market fluctuations—two key factors in building the right asset mix for your portfolio.
Through Advisor.com, you can schedule a free, no-obligation consultation to discuss your retirement goals and long-term financial plan.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
