Warren Buffett Says Most Investors Only Need These Two Investments

Building an investment portfolio can quickly become complicated. Investors can choose among thousands of stocks, bonds, mutual funds, exchange-traded funds, and increasingly alternative assets.

Warren Buffett has long argued that most people don't need that complexity. His remarkably simple approach consists of just two investments: a low-cost S&P 500 index fund and short-term U.S. government bonds. The strategy, commonly known as Buffett's 90/10 rule, could provide a straightforward way to start investing.

Buffett's 90% stocks and 10% bonds portfolio strategy

Buffett laid out the strategy in his 2013 Berkshire Hathaway shareholder letter while explaining how money left for his wife should be invested after his death.

His instructions were straightforward: Put 10% of the cash in short-term government bonds and 90% in a "very low-cost S&P 500 index fund." Buffett specifically suggested a Vanguard fund, although investors can follow the general strategy with other low-cost funds tracking the S&P 500.

The stock portion gives an investor exposure to 500 leading U.S. companies across numerous industries, while the remaining 10% in short-term government bonds provides a considerably more conservative component.

Why Buffett likes index funds

The Oracle of Omaha also wrote that he believed the long-term results from this approach would outperform those achieved by most investors, including pension funds, institutions, and individuals who employ high-fee managers.

"I believe the trust's long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers," he wrote.

Benefits of the S&P 500 index fund

Buffett isn't suggesting that professional investors never beat the market. His argument is that identifying those managers in advance and consistently outperforming after fees is extremely difficult.

An S&P 500 index fund takes a different approach. Rather than paying a manager to select stocks they believe will outperform, the fund simply tracks the companies represented by the index, which generally means lower management expenses and less trading.

Buffett has repeatedly argued that this is sufficient for ordinary investors. His recommendation is based partly on his long-running belief in the American economy and partly on the mathematics of investment costs.

Every dollar paid to a fund manager is a dollar that isn't left in your portfolio to compound. Even relatively small differences in annual fees can become substantial over several decades.

Most active large-cap funds still trail the S&P 500

Recent data gives Buffett's argument some support: the latest full-year SPIVA U.S. Scorecard from S&P Dow Jones Indices found that 79% of actively managed U.S. large-cap mutual funds underperformed the S&P 500 in 2025.

The longer-term numbers are even more striking. At midyear 2025, approximately 90.5% of active large-cap funds had underperformed the S&P 500 on a risk-adjusted basis over five years, while about 94.4% underperformed over 10 years.

Data also shows that 73% of actively managed U.S. large-cap equity funds failed to beat the S&P 500 over the 12-month period ending June 30, 2026.

Those numbers don't mean an active manager can never beat the S&P 500. Some do. The difficulty for an ordinary investor is determining ahead of time which managers will outperform and whether they can continue doing so. A low-cost index fund removes that decision entirely.

The 10% in government bonds serves a purpose

Buffett's recommendation isn't 100% stocks, with the remaining 10% going into short-term U.S. government bonds to provide a more conservative component that isn't exposed to stock-market swings in the same way as the S&P 500.

Besides adding some stability, short-term government bonds give investors access to relatively liquid assets during periods of market volatility, reducing the likelihood that they would need to sell stocks at depressed prices if cash is needed during a downturn.

Benefits of government bonds

Short-term Treasurys have produced much more modest returns than stocks over the past decade. Vanguard's Short-Term Treasury ETF returned about 1.7% annually over the 10 years through mid-2026, meaning $10,000 invested a decade earlier would have grown to roughly $11,860 with distributions reinvested.

Those more modest returns also help explain why Buffett limits government bonds to just 10% of the portfolio. Rather than relying on them to generate substantial long-term growth, the strategy uses bonds as a conservative counterweight to the much larger stock allocation.

Bottom line

Warren Buffett's 90/10 strategy is about as straightforward as investing gets: 90% in a low-cost S&P 500 index fund and 10% in short-term U.S. government bonds.

However, Buffett's allocation is heavily weighted toward stocks. Younger investors with decades ahead of them may be better positioned to tolerate that volatility than someone approaching or already in retirement.

The takeaway isn't necessarily that everyone should put exactly 90% of their money into the S&P 500. It's that keeping costs low, diversifying, and avoiding unnecessary complexity could help investors improve their financial fitness without trying to outsmart the market.

This article is for informational purposes only and should not be considered investment advice.

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