The Only 2 Investments You Need According to the World’s Greatest Investor
A simple investing strategy to help retail investors maximize their returns.
Disclaimer: The content in this article is intended for informational purposes only. Before selecting an investment, make sure it’s right for you.
Warren Buffett is considered one of the greatest investors of all time. The chairman and CEO of Berkshire Hathaway has a net worth has a net worth of $120 billion.
A former student of pioneering value investor Benjamin Graham, Warren Buffett has led Berkshire Hathaway to generate average annual returns of 20% since the 1960s. By comparison, the S&P 500 generates an average annual return of around 10%.
So, the Oracle of Omaha has managed to beat the market by nearly double for six straight decades.
However, when it comes to retail investors (that’s folks like you and me), Buffett thinks that owning index funds is one of the smartest investing moves to generate maximum returns over the long-run.
For example, Buffett believes that most average investors should create a 90/10 portfolio with the following two investments:
- S&P 500 Index Fund
- Short-Term Treasury Fund
The S&P 500
While Warren Buffett has managed to generate double the returns of the S&P 500, he understands that the vast majority of retail investors won’t be able to consistently generate those kind of returns, let alone beat the market.
In fact, most professional fund managers fail to beat the market when you take into their high management fees.
Therefore, in order for long-term investors to maximize their returns, they should invest around 90% of their portfolio in a low-cost S&P 500 index fund or EFT.
Doing so will guarantee you average returns, which is better what most investors generate.
Furthermore, picking a low-cost index fund means that you will pay far less for management fees — allowing you to keep more of your money, which helps to further maximize your returns.
What is the S&P 500?
The S&P 500 is comprised of the 500 largest publicly traded companies in the United States — representing nearly 80% of the total market cap in the country. And these 500 companies come from every major industry.
For example:
- Finance
- Information Technology
- Energy
- Healthcare
- Utilities
- Industrials
- Consumer Staples
So, buying the index means owning a piece of the 500 biggest public companies in America from a wide range of diverse industries. Not a bad long-term investment.
Short-Term Treasuries
Warren Buffett does believe that every portfolio needs a bit of a safety net from the volatility of owning stocks. That’s why he represents investing the remaining 10% of your portfolio in short-term bonds.
For examples, treasury bills that mature in under a year, as well as treasury notes that mature in 1 to 3 years.
He recommends U.S. Treasuries, which are backed by the full faith and credit of the U.S. government.
And there are a number of short-term treasury bond funds available.
Buffett is not a fan of owning long-term bonds.
Warren Buffett’s 90/10 Portfolio
If you have a long-term investing horizon and are looking for a simple, low-cost strategy to maximize your returns, then Warren Buffett’s 90/10 portfolio (or a variation of it) might be right for you.
Just find the cheapest S&P 500 index fund or ETF to put 90% (or the percentage you feel comfortable with) of your holdings in. The lower the fees you pay, the more of your money you will get to keep, which will compound and grow over many years.
And to offset some of the volatility of owning stocks, you can put the remaining amount of your portfolio in a short-term treasury bond fund.
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