Tuning into Warren Buffett’s interviews and reviewing his writings gives you a brief introduction to best investment practices. And while Buffett often delivers conceptual nuances of investing wisdom, he doesn’t hold back on specific, action takeaways. For example, in a letter to 2013 to Berkshire Hathaway shareholders, Buffett provided the exact portions of the portfolio described in his will. And what do you think? That package is cunningly simple. If you have a bankruptcy account and know how to request a trade, you can report on Buffett’s plan today.
You only have to put 10% of your money into Treasury short-term securities and the rest at low cost S&P 500 index fund.
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Government bonds for sustainability
In this two-position package, government bonds provide stability and liquidity. If you need money at a time when you don’t want to sell your shares, there is always a market for U.S. government securities. That role is important enough that you can accept a very low yield (less than 1%).
“Short-term” means maturities of less than five years. You can choose from TIPS, which offer protection from inflation, or standard Financial bonds. Both are available for purchase at TreasuryDirect or through an ETF or mutual fund, such as the Vanguard ETF short-term hedges (NASDAQ: VTIP) no an Schwab Short Term US Financial ETF (NYSEMKT: SCHO).
S&P 500 stocks to grow
Your larger position in the S&P 500 should deliver share price value in addition to share income. Investing in the S&P 500 will give you diversification across hundreds of mature, financially viable companies. Specifically, these are 500 of the largest public companies in the US Combined, make up about 80% of the stock market value and largely determine market behavior as a whole.
You could invest in the S&P 500 companies on their own, but most investors will follow Buffett’s advice and buy low-cost index funds instead. Low cost means that the fund has efficient operating costs, which allows a larger proportion of investment returns to flow through to shareholders.
Two assets that fit that description SPDR S&P 500 ETF package (NYSEMKT: SPLG) and the iShares Core S&P 500 ETF (NYSEMKT: IVV). Another option is the Vanguard S&P 500 ETF (NYSEMKT: VOO), was elected by Buffett back in 2013.
Changes you can make
Not even a Buffett pack is perfect for every situation. Keeping 90% of your wealth in rations may lead to nice growth over time, but that comes with the risk of high volatility in the short term. You need to change that strategy if it does not align with your risk tolerance, which should be partly a duty of your age. If you’re retiring or close to retirement, or you don’t like surprises, you prefer more stability than this package offers.
The solution here is simple: Keep less money in the S&P 500 fund and move more to your bond fund. A 50/50 split would be very conservative, and 70/30 would be moderately risky.
You would also change Buffett’s approach if you don’t intend to be a new investor forever. In that case, you could dedicate 10% of your portfolio to stocks of your choice. You might follow the two-pack model in your 401 (k), for example, but then save a smaller amount each month to a bankruptcy account that has access to the full range of trading securities. You can then develop and update your own investment method – without wasting most of your wealth.
Find your balance
The big takeaway from Buffett ‘s package may not be the exact satisfaction, but instead you can balance risk and stability with just two positions, while behaving differently. Look at your investment goals and timeline to identify the level of balance that works for you.
This article represents the opinion of the writer, who may not agree with the “official” recommendation position of the Motley Fool chief consulting service. We are motley! Questioning an investment dissertation – even one of our own – helps us to think critically about investing and make decisions that will help us become softer, happier and richer.