Legendary investor Warren Buffett has shared a simple yet powerful piece of advice for beginner investors through what is known as the 90/10 strategy. But how does this strategy actually work?

According to Investing.com, Buffett recommends allocating 90% of available funds into a low-cost S&P 500 index fund, while the remaining 10% should be invested in short-term government bonds.

This approach was first detailed in his 2013 letter to Berkshire Hathaway Inc. (BRK.A) shareholders. Inspired by his mentor Benjamin Graham, Buffett emphasized that investing is essentially about buying “small pieces of businesses,” even though not everyone has the ability to analyze companies in great depth.

He reassured that the good news is ordinary investors do not need such analytical expertise to succeed. Buffett also highlighted that U.S. businesses as a whole have delivered exceptional performance and are likely to continue growing, despite experiencing unpredictable ups and downs.

Furthermore, Buffett argued that investors don’t need to rely on high-cost asset managers. He pointed out that most investment managers fail to consistently outperform the S&P 500.

For this reason, he advised investors to avoid chasing individual stocks or getting caught up in the excitement of a bullish market. He even quoted the late Barton Biggs, who once remarked, “A bull market is most enjoyable just before it ends.”

In the same letter, Buffett revealed that his personal will also incorporates the 90/10 strategy for his wife’s inheritance. His Berkshire Hathaway shares would be donated to a foundation, while the remaining cash would be allocated according to this simple investment approach.

Buffett firmly believes this method will yield better returns than relying on costly investment managers. He maintains that pension funds, institutions, and individual investors alike would struggle to match the efficiency of such a straightforward, low-cost strategy.

The 90/10 approach consists of two core components: 90% of liquid assets go into an S&P 500 index fund, while the remaining 10% is allocated to short-term government bonds such as Treasury Bills.

The primary objective is to maximize long-term growth through stock market exposure while preserving liquidity and reducing risk during periods of market volatility. Additionally, this strategy minimizes management costs that could erode overall returns.

Key advantages of the 90/10 strategy include strong potential for long-term returns, controlled risk levels, and low investment costs. It also saves investors time since only periodic rebalancing is required, eliminating the need to constantly seek out new investments.

Moreover, this approach helps ease the emotional stress that beginner investors often experience during market swings. Diversification through the broad S&P 500 index, combined with bond reserves, is believed to provide stability while ensuring portfolio growth.