Billionaire Warren Buffet, the chairperson of Berkshire Hathaway has shared his advice on how to deal with the markets in terms of investment.
He advocated for a 90/10 rule where one must divide their investment as such that 90% goes to low-cost S&P 500 index fund and the rest 10% is put into short-term government bonds.
Warren Buffet has said that he puts the 90/10 advice to use for his family as well and his will has made it very clear that after his passing, his wife, who will become trustee, must follow the 90/10 rule and divide the investment accordingly.
In a letter written years ago, Warren said, "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".
While the investment seems clever, it does not work in markets all over the world and is only suitable for the economy in America. However, for investors in India there is a way out as well if the want to implement the 90/10 rule.
Vaqarjaved Khan, the CFA, Sr. Fundamental Analyst at Angel One had said in this regard, "Passive investing works best when market are efficient or very close to being efficient. US equities are more efficient then Indian equity market. Hence a 90/10 strategy would work better there as alpha opportunities are less".
Prabhakar Kudva who is the Director of Portfolio Management Services at Samvitti Capital also believes that Indians can use this method to maximise their investment because the 90/10 method is basically about passive investing where you aim to create long-term wealth at a very low cost.
He had said, "It is built on the belief that a broad market index will, over time, outperform most actively managed funds. While the specific assets Buffett recommends are US-centric, the underlying logic can certainly be applied to the Indian equity and debt markets. This makes the strategy a valuable framework for individuals seeking a simple, effective, and low-maintenance approach to building wealth."
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