Warren Buffett backs THIS ‘90/10’ investment mantra for his family: Should Indian investors follow?

Known as the Oracle of Omaha and for his spectacular run at the helm of Berkshire Hathaway, many investors big and small, look to billionaire Warren Buffett for his advice on the best course of action in the markets.

Among his favoured investment advice for average investors is the 90/10 rule. What is this rule? According to Warren Buffett, you should divide your investment as follows: Put 90 per cent into low-cost S&P 500 index fund, and the remaining 10 per cent in short-term government bonds.

A straightforward bet, the billionaire investor’s 90/10 portfolio plan suggests that most investors benefit from broader market exposure, as opposed to trying to predict the markets or concentrating all their eggs in a few baskets.

Why does Warren Buffet advocate for 90/10 rule?

And its not just words, Warren Buffett backs this advice for his family too. In 2013 letter to Berkshire Hathaway investors, the billionaire said that his will stipulates that the money left to his wife be invested by an appointed trustee using the 90/10 rule: 90 per cent of the cash in a “very low-cost” S&P 500 index fund and 10 per cent in short-term government bonds.

“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,” he wrote.

Notably, however, Warren Buffett’s advice was for American investors, in an American economy. How would this advice pan out for Indians? We asked the experts and break it down for you…

Is the 90/10 investing strategy a good bet for Indian investors?

According to Vaqarjaved Khan, CFA, Sr. Fundamental Analyst at Angel One, Indian investors can apply Warren Buffett’s 90/10 rule, but with some modifications. “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,” he said.

Prabhakar Kudva, Director and Principal Officer — Portfolio Management Services at Samvitti Capital concurs that the strategy can be adapted for Indian investors.

“The core philosophy behind the strategy is embracing passive investing, long-term wealth creation at a minimal cost. 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,” he noted.

How can Indian investors modify Warren Buffett’s advice to suit their needs?

Khan recommends that investors in India, including retail investors, implement the 90/10 strategy with small modifications.

• “In India, as well for retail investors, this strategy can be implemented with small modification such as 75 per cent towards Nifty 500 which is a diversified index, 15 per cent towards Large cap/Mid cap active funds for additional alpha for the portfolio, and remaining 10 per cent towards government securities (G-sec) or cash and cash equivalents for desired liquidity,” Khan said.
• “The other option that can be implemented for Indian markets is, 60 per cent towards Nifty 50/Sensex ETF, 15 per cent towards Nifty Large cap/Mid cap Funds, 15 per cent towards Flexi cap funds, and remaining 10 per cent in G-sec or cash,” he added.

According to Kudva, for Indian investors, the key is to find suitable domestic alternatives that mirror the spirit of the 90/10 strategy.

• “The 90 per cent equity portion can be effectively invested in a low-cost index fund that tracks a broad-based Indian index. The Nifty 50, Nifty 500 and the BSE 500 are excellent choices, as they represent a wide cross-section of India’s largest and most dynamic companies, providing inherent diversification. The Nifty 500 or BSE 500, in particular, offer broader exposure and can be a strong alternative to a S&P 500 index fund,” he said.
• “For the 10 per cent debt component, a direct investment in short-term government bonds is not practical for most retail investors. A more accessible and equally safe alternative would be to invest in liquid funds or short-term debt mutual funds which invest primarily in sovereign and AAA rated securities. These funds offer high liquidity and capital preservation, making them an ideal substitute for government bonds within this strategy,” he added.

What are the pros of the 90/10 strategy?

For one, the strategy is “easy to implement”, said Khan, adding, “there is no skill required for stock picking and its low cost as well”. It also:

• Provides diversification across market cap and stability from bonds.
• Removes emotional biases and allows the investor to take advantage of the compounding power of equities.

According to Kudva, “the primary advantage of the 90/10 strategy for retail investors lies in its simplicity and cost-effectiveness”.

• It eliminates the need for complex analysis and its low expense ratios can significantly boost long-term compounding.
• The strategy also removes the emotional element from investing, as it requires no active intervention during market fluctuations, helping investors avoid common mistakes like panic selling.

What are the cons of the 90/10 strategy?

Khan notes that market depth for Indian market is less than the United States.

“Concentration risk in India is higher as Indian indices are narrower than S&P 500. Meanwhile, Indian markets are less efficient then US markets allowing for alpha opportunities. With a complete passive approach towards equities or not using active funds this opportunity can be lost. For investors with shorter horizon or late in their age cycle may also find 90 per cent allocation towards equities as very aggressive as they would want more buffer for liquidity in their portfolio,” he added.

Kudva also acknowledges that the method is “not without its drawbacks”. He added, “the high 90 per cent allocation to equity makes it highly volatile and unsuitable for investors with a short time horizon or low-risk tolerance. A significant market downturn could lead to substantial notional losses in the short to medium term which some investors may not be able to stomach.”

“Additionally, while the strategy promises market-matching returns, it means you will never outperform the market. For some investors who are willing to take on more risk for the potential of higher returns, a more customized or actively managed portfolio might be a better fit,” he added.