Portfolio Overview

Warren Buffett Index Portfolio: A Simple Choice for 401(k) and Novice Investors

Investing doesn't have to be a maze, does it? Warren Buffett, the man who's seen markets twist and turn for decades, once suggested a dead-simple approach to building wealth. In his 2013 letter to Berkshire Hathaway shareholders, Buffett revealed instructions he had left for the trustee managing his wife's inheritance. He said 90% of the money should go into a low-cost S&P 500 index fund, and the other 10% into short-term government bonds. This idea, often called the Warren Buffett Index Portfolio, is so straightforward you might wonder why we bother with anything else. But is it really enough for your 401(k), IRA, or taxable account? Let's dig in, not pretending we've got all the answers, but curious to see what this portfolio's about.

Buffett's philosophy comes from a place of trust in the U.S. economy over the long haul. He's not chasing hot sectors or trying to time the market. (Who can, anyway?) The man's been clear: most investors, including the pros, can't beat the market consistently. So why not just own it? His portfolio reflects that. It's not about being flashy or clever. It's about sticking to what's worked for ages: buy low-cost index funds, hold them forever, and let time do the heavy lifting. Sounds almost too simple, right? Yet, this approach has a quiet confidence, like someone who's weathered a few storms and knows the sun comes up eventually.

Warren Buffett Index Portfolio Holdings

Let's break down the pieces. The portfolio's got two parts, nothing fancy:

• 90% Stocks (VFINX): This tracks the S&P 500, the biggest U.S. companies. Think Apple, Microsoft, Walmart. It's the heart of the U.S. economy, for better or worse.
• 10% Bonds (VFISX): Short-term Treasury bonds. Safe, boring, but they're there to cushion the ride when stocks wobble.

Does this cover the bases? Well, it's got U.S. stocks, sure, and a sprinkle of bonds. But it's missing a lot: no international stocks, no emerging markets, no small caps, no REITs, no commodities. Gold? Nope. Long-term bonds? Not here either. It's lean, maybe too lean for some. If you're looking for diversification across every asset class, this isn't it. It's like ordering a plain burger when the menu's got chili fries and milkshakes. Still, there's something to be said for keeping it simple. Buffett's betting on the U.S. market's long-term growth, and history's mostly on his side.

Risk-wise, this is no sleepy portfolio. With 90% in stocks, it's got some spice. When markets tank, like in 2008 or 2020, you're feeling the pain. The 10% in bonds helps, but it's not a big cushion. Compare that to, say, the Harry Browne Permanent Portfolio, which spreads things out with gold and long-term bonds to hedge inflation and deflation. Buffett's portfolio doesn't bother with that. It's bold, maybe a bit stubborn, banking on stocks climbing back up over time. But for young investors or those with decades until retirement, that risk might be just fine. If you're closer to cashing out, though? Maybe you'd want more bonds.

What stands out? The sheer simplicity. Two funds, that's all. No rebalancing headaches, no chasing exotic assets. But the flip side is you're all-in on the U.S. If the S&P 500 stumbles for a decade, you're along for the ride. And those short-term bonds? They're safe, but they won't keep up with inflation like gold or long-term bonds might, as Browne's portfolio suggests. It's a tradeoff: clarity versus coverage.

Using This in Your 401(k) or IRA

So, how do you make this work in a 401(k) or IRA? First, check your plan's fund lineup. You're looking for something close to VFINX, like an S&P 500 index fund. Most 401(k)s have one---Vanguard, Fidelity, Schwab, they all offer low-cost versions. For the bond piece, find a short-term Treasury or government bond fund similar to VFISX. If your plan's got nothing exact, don't sweat it. A core bond fund or a high-quality actively managed bond fund (check out total return bond funds) can work. Just peek at the expense ratio on Morningstar.com and make sure it's diversified, not some narrow corporate bond fund.

If your 401(k) is missing an S&P 500 fund (rare, but it happens), grab a diversified active U.S. stock fund. Same goes for bonds: no short-term Treasuries? An intermediate bond fund will do. Rule of thumb: stick to index funds for stocks, low-cost if you can. For bonds, core or high-quality active funds are fine. Don't overcomplicate it. In an IRA, it's even easier---use ETFs like SPY for stocks or SHY for bonds. Brokerages like Fidelity or Schwab let you trade those for free.

Who's this for? Investors who like to set it and forget it. If you're in your 30s or 40s, with 20 years or more until retirement, the 90% stock allocation matches that long horizon. But it's aggressive. If markets dip, you're stomach's gotta handle a 30% drop. Nervous types might want less stock. Head to MyPlanIQ's Asset Allocation Calculator to figure out your risk tolerance. Answer a few questions, and it'll tell you how much to put in stocks versus bonds. If 90% stocks feels wild, dial it back---maybe 70% stocks, 30% bonds. Keep the same funds, just tweak the split.

Taxable Accounts: Keeping It Tax-Efficient

Now, what about taxable brokerage accounts? Good news: this portfolio's built for tax efficiency. Index funds like VFINX (or its ETF cousin, SPY) don't churn their holdings much, so they spit out minimal capital gains. Same with VFISX---short-term bonds don't move a lot, keeping taxes low. You're mostly dealing with dividends, which are taxed, but it's not like you're flipping stocks every month. The buy-and-hold nature is a tax win: you only pay when you sell, ideally years down the road.

Tax-loss harvesting? Sure, you could do it. If stocks dip, sell VFINX, buy a similar fund (like a total market fund, VTSMX), and book the loss for your taxes. Just don't trip over the wash-sale rule---wait 31 days before buying VFINX back. It's a nice trick, but honestly, this portfolio's so hands-off, you might not bother. The tax savings are real, though, especially in high-income years.

Takeaway

The Warren Buffett Index Portfolio isn't trying to win a complexity contest. It's just two funds, a big bet on U.S. stocks, and a nod to safety with bonds. Is it perfect? Probably not. It skips a lot of assets that could spread risk better, like international stocks or gold. But there's something refreshing about its clarity. You don't need a PhD to understand it, and maybe that's the point. For 401(k) or IRA investors who want to keep things simple, or taxable account holders who hate tax headaches, it's worth a look. Just know your risk tolerance, because this one's got some kick.

We're not saying this is the only way to go. Markets surprise us all the time, don't they? But Buffett's been around the block, and his logic's got weight. If you're tired of chasing trends or second-guessing, maybe this is your kind of lazy. Set it, forget it, and trust the long game. Will it work forever? Who knows. But it's got a decent shot, and that's more than most strategies can say.

Asset Allocation

Historical Performance

Warren Buffett Index Fund Portfolio Return Calculator

Calculators

Dollar Cost Average Calculator for Warren Buffett Index Fund Portfolio

Retirement Spending Calculator for Warren Buffett Index Fund Portfolio

Rolling Returns

From 10/30/1991 to 05/14/2025, the worst annualized return of 5-year rolling returns for Warren Buffett Index Fund Portfolio is -5.36%.

From 10/30/1991 to 05/14/2025, the worst annualized return of 10-year rolling returns for Warren Buffett Index Fund Portfolio is -2.4%.

Maximum Drawdown

Warren Buffett Index Fund Portfolio Maximum Drawdown