Warren Buffett's investment advice on the S&P 500: the 90/10 rule and the Vanguard Index Fund that could turn $400 a month into $820,000

For decades, Berkshire Hathaway CEO Warren Buffett has consistently recommended the exact same strategy for everyday investors looking to build long-term wealth: buy a low-cost S&P 500 index fund and hold it.

Outlined prominently in his 2013 letter to Berkshire Hathaway shareholders, Buffett revealed that his own estate planning follows this principle. He advised the trustee of his wife’s inheritance to utilize a strict “90/10 rule”—a strategy that avoids the high fees of active Wall Street money managers in favor of a straightforward, set-and-forget approach.

The 90/10 strategy limits portfolio complexity by dividing liquid assets into just two distinct categories:

Buffett argues that the average investor does not possess the specialized skills required to analyze and pick individual stocks. Furthermore, historical data confirms that most active professional fund managers fail to consistently beat the S&P 500 benchmark over the long term.

By adopting the 90/10 rule, investors secure built-in diversification across 500 large U.S. companies while paying minimal management fees. The Vanguard S&P 500 ETF (VOO), for example, charges an expense ratio of just 0.03%, meaning investors pay a mere $3 annually for every $10,000 invested.

Currently, the index provides heavy exposure to some of the world’s most influential technology giants, with top holdings including:

While the S&P 500 has experienced 16 market corrections and four bear markets over the last three decades, it has remained incredibly resilient, returning an average of 10.2% annually (1,790% total return) during that 30-year span.

Because compounding works slowly at first and delivers its most explosive gains in the final years of holding, maintaining discipline is vital. Assuming historical returns hold steady and dividends are reinvested, a consistent monthly investment strategy yields dramatic long-term results:

Despite its historical success, a 90% equity allocation carries inherent volatility. Because stocks can suffer deep, sudden drops during market crashes, the 90/10 split is primarily a growth strategy and may not be suitable for older investors nearing retirement who have a low risk tolerance or require immediate, reliable withdrawals to fund their lifestyle.

Financial researchers note that while the strategy outperforms traditional 60/40 splits during bull markets, retirees utilizing the 90/10 rule must carefully balance their withdrawals, pulling from the 10% bond reserve during bear markets to give their equities time to recover.

Before heavily deploying capital into an S&P 500 fund, the foundational phase of this strategy requires investors to first clear out high-interest, toxic debt and build a separate emergency fund covering three to six months of living expenses. Once that foundation is set, the process is simple: open a brokerage account, automate monthly index fund purchases, and ignore short-term market headlines.