The Warren Buffet Retirement Plan - How Does it Stack Up?




Warrren Buffet´s advice to the trustees of his estate was very simple:-

 “My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) 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.”


Reaction to his advice was mixed some along the lines of 10% of his cash would last several lifetimes and that no financial advisor could recommend 90% equities for a retirement portfolio.


But based upon  past market data how would this strategy hold up for a retiree in drawdown?  Using data from Portfolio Charts an investor in 90% total market US stock and 10% in short term 
treasury bills would be able to drawdown at 4.4% for a 30 year retirement and at 3.5% for ever. 
(this is idealised as charges are not included).





This is virtually identical to the performance of a classic 60:40 portfolio (4.5%/3.5%)


If the exercise is repeated for the UK stock market as to be expected a lower drawdown % is achievable compared to the US market but again there is little difference between a 90/10 (4.1/3.2%) and a 60/40 portfolio (4.2/3.3%).






It seems to me that this low cost simple plan from the Sage of Omaha has quite a lot going for it. I suggest that anyone interested should play around with various portfolios on Portfolio Charts to compare projected outcomes.  Identical results are unlikely to be achieved in practice but Portfolio Charts provides an excellent means of comparing different styles of portfolio.




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