Warren Buffett’s 2013 advice still points long-term investors toward index funds: put 10% of cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. For investors in their 20s, the case for the Vanguard S&P 500 ETF rests on a multi-decade horizon, not a quick trade.
Warren Buffett's 90% rule
In his 2013 letter to Berkshire Hathaway shareholders, Buffett told the trustee to put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. The line has become a shorthand for his view that broad market exposure, low fees, and patience matter more than chasing the latest winner.
The Vanguard S&P 500 ETF is the cleanest version of that idea in fund form. It carries a 0.03% expense ratio, which keeps more of the market return in the account instead of sending it out in fees.
Vanguard S&P 500 ETF exposure
The fund gives exposure to hundreds of the U.S. economy’s biggest, most successful companies. That is the appeal for a long hold: one purchase reaches across sectors and lets the index evolve over time as leadership changes.
The change has been dramatic. Half a century ago, AT&T and General Motors were among the largest holdings in the S&P 500. Today, Apple and Microsoft sit among the largest holdings instead, a reminder that the market cap-weighted index moves with the economy rather than freezing it in place.
S&P 500 concentration risk
The tradeoff is concentration. The top 10 holdings make up nearly 40% of the S&P 500, and the tech sector accounts for 40% of the index. That leaves investors with broad exposure, but not evenly spread exposure.
Buffett’s framework still fits that reality because it does not ask investors to predict which companies will lead next. It asks them to accept the index as it is, keep costs low, and keep buying through the swings.
The article says 20%-plus pullbacks in the S&P 500 are not uncommon, so the plan is built for people who can stay invested through them. Automatic monthly investments can help an account grow faster, and someone who invests for the next 40 years should not be surprised to be sitting on a $1 million nest egg at retirement.
