The 90/10 Rule for Survival: Warren Buffett’s Guide to Investing When the Economy Feels Broken

When the markets are bustling, there’s a certain silence in Omaha. The sidewalks outside Berkshire Hathaway’s renownedly unassuming headquarters, located in Kiewit Plaza, are exactly the same as they were twenty years ago. There are no tickers flashing on screens. There are no traders yelling into phones. Just a 95-year-old man who has spent the majority of his life advising others not to overthink things and an ancient red-brick tower. In a year like this, when half of the financial press seems to be writing an ode to the economy, it’s difficult to ignore the disparity.

Since he included it in a letter to Berkshire shareholders in 2013, Warren Buffett’s 90/10 rule has been in circulation. It was an almost embarrassingly simple instruction. Invest 90% of the funds in an inexpensive S&P 500 index fund. Invest the remaining 10% in short-term government securities. That’s all. The simplicity of it seemed almost provocative at the time, and he wrote it for the trustee who would eventually oversee money left to his wife. Not a hedge fund. No exotic assignments. No reorganization every three months. Just a small safety net of Treasury bills for the bad years and a long bet on American business.

It seems odd that every time the economy falters, that advice comes back into vogue. Additionally, the economy is currently faltering. Sticky inflation, rate cuts that arrived late, layoffs creeping through tech and retail, a housing market that nobody wants to describe out loud. The rules appear to have changed, according to investors. Perhaps they have. Buffett’s argument, however, has always been that the rules don’t actually change—only the attitudes surrounding them do.

90/10’s math is not as complicated as it may seem. Since the 1920s, the S&P 500 has averaged about 10% annually before inflation, withstanding wars, oil shocks, and the kind of crashes that make regular people permanently fearful. The purpose of the 10% allotment to short-term Treasuries is not financial gain. Its purpose is to prevent you from selling stocks at the worst time—which, according to statistics, is when most people sell them. When discussing bull markets, Buffett once cited the late Barton Biggs, who compared them to something better left unprinted in polite company. The idea is that investors typically experience euphoria just before the floor collapses.

However, the argument put forth by critics is valid and deserving of consideration. A 90/10 split is predicated on the investor’s ability to wait. Await a six-year rebound similar to the one that ensued after 2008. It took five years to recover after a dot-com collapse. A retiree who withdraws 4% annually from a $2 million portfolio will only have enough money for roughly two years before they are compelled to sell stocks during a downturn. In contrast, Buffett’s wife will inherit liquid assets worth nearly $15 billion. That isn’t a portfolio. It’s a tiny sovereign wealth fund. The cushion is practically limitless. It isn’t for the majority of people.

Even when the proportions are off, the principle remains valid. Low prices are more important than most people realize. Over the course of thirty years, compounding fees of even one percent can reduce a modest portfolio by tens of thousands. Buffett has noted that fund managers typically fail to outperform the index they hire others to beat. His advice continues to survive the news cycles that attempt to bury it because of the data’s subtle humiliation.

There is a sense that the 90/10 rule has nothing to do with allocation after witnessing the recent panic and counter-panic. It has to do with temperament. Selecting the wrong asset is the most difficult part of investing. While everyone around you is selling, it is motionless. Buffett has been arguing that point for sixty years while sipping Cherry Coke in what appears to be an accountant’s office. It’s probably the only piece of advice that hasn’t changed, regardless of whether the economy is struggling or just getting started.