Buffett's Barbell: 90% Equities And 10% Cash For His Wife And Berkshire - And Maybe Retirees?

Mark

By Jim Sloan at SeekingAlpha:
"Summary
•Buffett's 2013 Shareholder Letter stated that he would instruct the trustee of his wife's bequest to invest 90% in an S&P 500 index fund and 10% in short Treasuries.

•An academic back study shows that this unorthodox allocation produces not only high returns but a much lower failure rate than conventional 40/60 and 30/70 portfolios.

•The essence of the Buffett portfolio is to divide the future into the short term in which money is needed and the long term in which stock returns are superior.

•The effect, in bond manager lingo, is a "barbell" portfolio with concentration at very short and very long maturities and an excluded middle - the Berkshire term structure.

•It turns out that the barbell may be the best way of matching maturities to the needs of pension funds, institutions, insurance companies, and individuals - including some retirees."

https://seekingalpha.com/article/4239453-buffetts-barbell-90-percent-equities-10-percent-cash-wife-berkshire-maybe-retirees?ifp=0

Sven

Warren Buffet is in a unique situation and he can afford it. I would think many retirees cannot rely on this 90/0/10 allocation in their IRAs to generate sufficient fund to supplement their social security and pension.

Mark

Sven note also that Buffett, like Bogle, has long advocated that folks consider their SS and pension funds as the bond or income side of their allocation. Whether those portions were ever to be considered as part of the 10 in the 90/10 scenario I'm not sure.

In your 90/0/10 setup what's the 0 for?

Sven

Bonds. 90/0/10 = 90% equity / 0% bond / 10% cash.

Buffett and Boyle have sizable asset and their required minimum distribution plans are quite different from most of us.

MikeM

I didn't read the article, but it seems this bar-bell is no different than the bucket system. So why wouldn't it work if you have enough in cash to hold out for any down turn in stocks to recover? Difference is that 10% cash for his wife could probably last an entire market cycle, so really no risk at all.

msf

Didn't read the article either, but doesn't seem to add anything new to the discussion. So I'll just reiterate my observations when the Buffett letter came out:

- I might have suggested 12% (that would amount to a three year buffer @4% drawdown/year), otherwise agree with MikeM

- Buffett (as well as Bogle) is enamored with the US market; I'd prefer a more global equity allocation.

Note also that Buffett did not instruct the trustee to invest 90/0/10 as the article claims. That was merely his advice:

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.

http://www.berkshirehathaway.com/2013ar/2013ar.pdf

johnN

If you have grandkids and considered give more than half of ur assets away maybe it's reasonable to keep 90 - 10 because most of these benefits vehicles would be transferred to ur love ones anyway and younger investors should be little more aggressive