Buffett 90/10
Buffett 90/10 (90 % S&P 500 index fund, 10 % short-term government bonds)
Where it stands today
Our calculation, 1926-07 – 2026-09
Growth of $10,000
Where it came from
The 90/10 allocation comes from Warren Buffett's annual letter to Berkshire Hathaway shareholders for 2013 (published early 2014). Buffett wrote that his own advice for ordinary investors matched what he had put in his will. One bequest is cash held by a trustee for his wife's benefit (he explains he must use cash because all his Berkshire shares are to be distributed to philanthropic organisations over ten years after his estate closes). His instruction to the trustee was to put 10 % in short-term government bonds and 90 % in a very low-cost S&P 500 index fund, and he suggested Vanguard's.
The advice sits at the end of an essay about investing in stocks like a farm or an apartment house. His argument: the non-professional does not need to pick winners; American business as a whole has done well (he cites the Dow Jones Industrials rising from 66 to 11,497 in the 20th century plus dividends) and a low-cost S&P 500 index fund captures that. He adds a timing point: build the position over a long period and never sell when the news is bad and prices are well below their highs. He expected the trust's long-term results to beat those of most investors who pay high-fee managers, including pensions and institutions.
Buffett had been arguing the case for years. On 19 December 2007 he made a ten-year bet with Protege Partners (arranged through the Long Now Foundation; the bet is usually dated 2007 in his letters, Wikipedia says 2008) that a Vanguard S&P 500 index fund would beat a selection of hedge funds-of-funds net of all fees. Each side bought zero-coupon Treasury strips (cost 318,250 dollars each at the start) to fund a 1 million dollar prize for charity; in late 2012 both sides replaced the bonds with Berkshire Hathaway B shares. When the bet ended on 31 December 2017 the S&P index fund had gained 125.8 % in total (8.5 % a year) while the five funds-of-funds had gained between 2.8 % and 87.7 % in total (0.3 % to 6.5 % a year). The prize went to Girls Inc. of Omaha (about 2.22 million dollars according to Wikipedia).
Context for the idea: Buffett credits Benjamin Graham's 'The Intelligent Investor', which he bought in 1949, for most of the thoughts in the passage. Graham himself recommended a mix of stocks and bonds between 25 % and 75 % (see m_graham). Buffett's 90/10 is a much more equity-heavy version of the same idea, with the bond slice kept short-term and the equity slice in a single index fund.
What is in it
| Very low-cost S&P 500 index fund (Vanguard suggested) | 90% | |
| Short-term U.S. government bonds | 10% |
How we model it
| US large companies (S&P 500) | 90% |
| Short-term government bonds | 10% |
For a euro investor
How to build it with European funds
| Part | Share | Example funds (ISIN) |
|---|---|---|
| US large companies (S&P 500) | 90% | iShares Core S&P 500 UCITS ETF USD (Acc) IE00B5BMR087Vanguard S&P 500 UCITS ETF (USD) Distributing IE00B3XXRP09 |
| Short-term government bonds | 10% | iShares USD Treasury Bond 1-3yr UCITS ETF (Dist) IE00B14X4S71iShares Euro Government Bond 1-3yr UCITS ETF (Dist) IE00B14X4Q57 |
The idea
Equities give most of the long-run growth; a small bond slice provides cash for withdrawals and calm. Cost minimisation and no stock picking.
How people buy it
Vanguard 500 Index Fund (named by Buffett) or equivalent S&P 500 ETF for 90 %; a short-term Treasury fund/ETF (e.g. 1-3 year) or Treasury bills for 10 %.
Rebalancing as published
Not specified by Buffett in the letter. Rebalancing frequency is left to the reader; the only timing advice is to accumulate over a long period and not sell when news is bad.
Variants
- 100 % S&P 500 (the spy model)
- Bogle-style 80/20 and 60/40 index mixes (Vanguard LifeStrategy)
- Replacing short bonds with cash
Criticism
- Buffett gave this as a trustee instruction for his wife, not as a general rule for all investors; the letter says it is 'essentially identical' to his advice to non-professionals.
- Many commentators point out that Berkshire's own record rests on stock picking, not on index funds - general critique, not sourced.
- The bet compared an index with hedge funds-of-funds, not with a broad set of active equity funds; the funds also hold hedges, so the comparison is imperfect (a common criticism, unsourced here).
- Heavy equity weight means deep drawdowns in bear markets.
Through the eras
| Era | Dates | Total | Per year | Worst drop | S&P 500 |
|---|---|---|---|---|---|
| Roaring Twenties boom | 1926-07 – 1929-08 | +135.7 % | +31.1 % | −5.3 % | +153.7 % |
| Wall Street crash and Great Contraction | 1929-09 – 1932-07 | −73.7 % | −36.7 % | −79.5 % | −78.2 % |
| New Deal recovery | 1932-08 – 1937-02 | +228.8 % | +29.7 % | −26.3 % | +268.7 % |
| Recession within the Depression | 1937-03 – 1938-03 | −45.3 % | −42.7 % | −45.3 % | −49.5 % |
| Rearmament and World War II | 1938-04 – 1945-09 | +176.2 % | +14.5 % | −25.5 % | +205.8 % |
| Postwar expansion | 1945-10 – 1965-12 | +985.2 % | +12.5 % | −22.1 % | +1212.9 % |
| Golden age of the 1950s | 1950-01 – 1959-12 | +372.9 % | +16.8 % | −13.4 % | +438.8 % |
| Go-go years and nifty-fifty | 1966-01 – 1968-12 | +32.2 % | +9.8 % | −13.7 % | +34.0 % |
| The Great Inflation (stagflation) | 1969-01 – 1982-07 | +96.3 % | +5.1 % | −41.7 % | +84.6 % |
| 1973-74 oil shock and bear market | 1973-01 – 1974-12 | −37.0 % | −20.6 % | −41.7 % | −41.7 % |
| Second oil shock and the Volcker disinflation | 1979-01 – 1982-08 | +59.0 % | +13.5 % | −12.6 % | +59.2 % |
| Great bull market in stocks and bonds | 1982-08 – 1999-12 | +1743.1 % | +18.2 % | −27.4 % | +2060.4 % |
| Black Monday | 1987-08 – 1987-12 | −19.8 % | — | −27.4 % | −21.8 % |
| Savings-and-loan crisis and 1990 recession | 1990-07 – 1991-03 | +7.7 % | — | −14.5 % | +7.4 % |
| 1994 bond market massacre | 1994-02 – 1994-12 | −3.0 % | — | −7.0 % | −3.2 % |
| Asian and Russian financial crises | 1997-07 – 1998-10 | +21.3 % | +15.6 % | −15.6 % | +22.4 % |
| Dot-com bubble and crash | 2000-03 – 2002-10 | −32.3 % | −13.6 % | −40.0 % | −37.2 % |
| Recovery and housing boom | 2002-11 – 2007-09 | +87.1 % | +13.6 % | −8.4 % | +97.0 % |
| Global financial crisis | 2007-10 – 2009-03 | −39.9 % | −28.8 % | −45.4 % | −44.7 % |
| The decade after the crisis | 2009-04 – 2019-12 | +343.8 % | +14.9 % | −16.0 % | +411.2 % |
| Fourth-quarter 2018 sell-off | 2018-09 – 2018-12 | −12.9 % | — | −13.1 % | −14.4 % |
| Covid crash and stimulus boom | 2020-02 – 2021-12 | +48.0 % | +22.7 % | −18.0 % | +53.6 % |
| Inflation shock and rate hikes | 2022-01 – 2022-12 | −18.3 % | −18.3 % | −22.8 % | −19.9 % |
Calendar years
Any N-year period
| Any N-year period | Worst | 10 % worse than | Median | 10 % better than | Best |
|---|---|---|---|---|---|
| 1 y (1192) | −60.6 % | −11.1 % | +13.1 % | +32.3 % | +132.8 % |
| 3 y (1168) | −38.7 % | −3.4 % | +11.1 % | +21.3 % | +39.7 % |
| 5 y (1144) | −16.6 % | +0.3 % | +10.9 % | +18.1 % | +31.1 % |
| 10 y (1084) | −4.3 % | +3.9 % | +10.6 % | +15.7 % | +18.7 % |
| 15 y (1024) | +0.1 % | +5.6 % | +10.3 % | +14.8 % | +17.9 % |
| 20 y (964) | +2.0 % | +6.9 % | +10.4 % | +14.0 % | +17.2 % |
| 30 y (844) | +7.1 % | +9.3 % | +10.4 % | +12.2 % | +13.9 % |
How it behaved in history
- 2008. In the year of the financial crisis the S&P index fund fell 37.0 %, and the five funds-of-funds fell 16.5 % to 30.1 %: all five beat the index in that year only. www.berkshirehathaway.com
- 2009-2017. In each of the nine years after 2008 the funds-of-funds as a group trailed the index fund (Buffett). www.berkshirehathaway.com
Published results (by others)
- Ten-year bet outcome: S&P 500 index fund vs five funds-of-funds (2008-2017): Index fund +125.8 % total (8.5 % annually); funds-of-funds +2.8 % to +87.7 % total (0.3 % to 6.5 % annually) www.berkshirehathaway.com
- Year-by-year S&P index fund returns in the bet (2008-2017): -37.0, 26.6, 15.1, 2.1, 16.0, 32.3, 13.6, 1.4, 11.9, 21.8 % (2008 to 2017) www.berkshirehathaway.com
- Fixed fees of the hedge funds-of-funds side (2008-2017): about 2.5 % of assets a year on average (Buffett's estimate) www.berkshirehathaway.com
What we could not verify
- The bet date: Buffett's letter says 19 December 2007; Wikipedia article text says early 2008. Used 2007 per Buffett.
- Which maturity 'short-term' means is not specified.
- Buffett's other statements on index funds (e.g. 1993 and 1996 letters, 2008 remarks on costs) not fetched; add if needed.
- Whether the 2013 letter date should be called 2014: letters are dated the following February; not verified from the page.
- The 2.22 million dollar prize figure comes from Wikipedia, not from the 2017 letter.
Sources
- www.berkshirehathaway.com
https://www.berkshirehathaway.com/letters/2013ltr.pdf - www.berkshirehathaway.com
https://www.berkshirehathaway.com/letters/2017ltr.pdf - en.wikipedia.org
https://en.wikipedia.org/wiki/Protégé_Partners
Calculated on historical data. Past results do not predict the future. Models before the 1990s use stand-ins for classes that had no index yet; fees, taxes and fund costs are not included. This is mathematics, not an investment recommendation.