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The 90/10 Rule – Warren Buffet #1 Money Savings Tip for Retirees – ReadWrite

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Free Your Money: Strategies for Keeping Your Money In The Best Place Possible - ReadWrite


Personally, I’m picky when it comes to receiving advice. For example, even if you’re my best friend or family member who I respect, I wouldn’t turn to if I needed a root canal or engine replacement. Of course, if you were a dentist or mechanic, that would be a different story.

The same is true when it comes to money. Why would I take financial advice from someone who lives above their mean, lost money on their investments, or doesn’t have a retirement plan?

However, there is one individual who I think we should all feel comfortable listening to when it comes to personal finance. And, that’s the Oracle of Omaha himself, Warren Buffett. Specifically, when t comes to his number one money-saving tip for retirees, the 90/10 rule.

The Warren Buffet 90/10 Rule

As one of the world’s most successful and well-known stock market investors, here’s Buffett’s advice for those who want to maximize their retirement savings.

“Consistently buy an S&P 500 low-cost index fund,” he told CNBC’s On The Money back in 2017. “I think it’s the thing that makes the most sense practically all of the time.”

Despite market fluctuations, he also advised staying the course. “Keep buying it through thick and thin, and especially through thin,” Buffett added.

But, let’s go back to 2014 when the chairman and CEO of Berkshire Hathaway described his indexed approach to investing known as the 90/10 Rule.

“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), Buffett stated in a 2014 letter to his shareholders. “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.”

Breaking down the 90/10 rule.

It may be hard to understand Buffet’s investment recommendation if you aren’t as experienced as he is. In order to fully grasp this, you must first know what an index fund is.

An index fund is a passively managed fund. Index funds are a type of mutual fund or an exchange-traded fund (ETF) that follows a benchmark index. It is not possible to invest in an index directly, but you can invest in an index mutual fund or an index ETF.

Index funds follow the performance of a benchmark stock index or an exchange-traded fund. Direct investments in indexes are not possible. But, they can be made through index mutual funds or index exchange-traded funds (ETFs).

Buffett proposes an index fund that tracks the performance of the S&P 500, which represents the 500 largest American companies publicly traded. As long as it rises, the index fund does as well. According to Buffett, 90% of your retirement funds should be invested in stock-based index funds.

What about the other 10 percent? Buffett recommends short-term government bonds. Bonds like these finance government projects. In comparison with other investments, they are relatively low-risk and pay low-interest rates.

Additionally, this type of short-term investment has a maturation of fewer than five years. Bonds can help reduce overall investment risks and provide diversification in your portfolio. Aside from offering stable dividends, interest payments, and capital safety, they also offer stable dividends and interest payments. Furthermore, bonds can be more liquid as regular income is provided.

Variations to the 90/10 Strategy

“Like most investment philosophies, the 90/10 rule isn’t hard-and-fast,” says Leanna Kelly for Investment U. “In fact, Buffett himself recommends investing for risk tolerance and age.”

Because of this, the 90/10 rule may vary as much as 70/30. “As a rule of thumb, 90/10 is ideal for investors who want to take their investing journey one year at a time,” adds Leanna. At the same time, 70/30 splitters tend to have shorter time horizons, so they can’t invest as much into stocks.

“There are also nuances in how to invest your money,” she says. For example, the S&P 500 is not the only index available. Investors who want to take on a little more risk may choose an index like the Russell 2000 and offset their risk with T-Notes and high-grade corporate bonds.

Overall, it’s possible to customize a 90/10 (or similar) strategy based on your level of risk tolerance.

Here is a breakdown of recommended retirement savings by age. We put together a few posts, here is how to retire at 55.

Eliminate Fund Fees

You should also steer clear of high-fee managers because their fees can eat into your profits and render them meaningless. Additionally, regular investments can result in a lot of fees that can quickly add up. Even a small percentage can generate substantial amounts of money in the long run.

Think about someone who is 25 years old and has a retirement account with a balance of $25,000. Each year, they add $10,000 to their investments and are earning a 7% rate of return with the goal to retire in 40 years. The fee will cost them nearly $600,000 over the course of 40 years, assuming they pay 1% in fees.

This person could retire nearly $340,000 richer if they invested in lower-cost funds like Buffett suggests, saving almost $200,000 in charges.

Invest and Forget

If you follow Warren Buffett’s 90/10 rule and the index approach to investing, you do not have to worry about rebalancing your portfolio. Using this strategy, you won’t have to worry about market volatility and portfolio rebalancing.

Where Warren Buffett’s Investment Strategy Falls Short

Investors have criticized Warren Buffett’s retirement investment plan despite its popularity and potential effectiveness.

Among the weaknesses of Buffett’s investment strategy are;

  • An investment portfolio that uses only indexes without a great deal of weighting toward bonds often misses out on one of the most important things. And, that’s diversification. For better growth and lower risk, financial specialists generally recommend a mix of different investments. At the minimum, this includes stocks, bonds, gold, real estate, and international funds. Such diversification helps to mitigate market volatility. The reason being is that one investment falls, another will rise.
  • Many financial advisers also believe that Warren Buffett’s strategy is better suited to high-risk investors or for young investors who have more time to make up for potential losses. As such, for older investors, it may not be ideal. One reason is that if a recession hits, a portfolio with 90% of stocks could have disastrous effects on those nearing retirement, as index funds mimic benchmark indices.

Do You Fit Buffett’s Strategy?

Investing markets are out of your control. You do, however, have control over the fees you pay. In many cases, higher fees don’t necessarily translate into better returns, so if you’re selecting investments for your 401(k) or another retirement account, look for low-fee index funds.

As a general rule of thumb, you should ask about the fees charged by your financial advisor. You might be paying too much if your fees exceed 1%. As with any other purchase, evaluate what you’re getting for your money.

Ultimately, paying higher fees makes sense more often when your financial situation is complex. If you have a relatively low account balance in your early years, you may want to consider a robo-advisor.

What’s more, trying to beat the market is rarely a good idea. According to research, your performance will partly reflect that of the overall market over time. As such, the high fee for professional investment advisors who try to beat the market is probably not worth it.

A hallmark of Buffett’s retirement advice has typically been about simplicity. It’s always a good idea to work with an advisor you trust and create a retirement plan that suits your risk tolerance. While it’s not guaranteed, Buffett’s retirement plan may be suitable for you and your retirement goals.

Frequently Asked Questions About Warren Buffett’s Retirement Invest Retirement Strategy

1. What is Warren Buffet’s retirement investment advice?

Buffett recommends a long-term portfolio allocated 90% to S&P 500 index funds and 10% to diversified short-term bond funds for most investors.

2. What about the risks of investing in index funds?

Buffett’s approach is not without critics. Investing in index funds is creating a bubble, said Michael Burry, a protagonist in Michael Lewis’ The Big Short book and movie.

Burry explained that “Like most bubbles, the longer it goes on, the worse the crash will be.” He emphasized that “the dirty secret of passive index funds — whether open-end, closed-end or ETF — is the distribution of daily dollar value traded among the securities within the indexes they mimic.”

Basically, Burry thinks the influx of cash into index funds has caused stock prices to become distorted, just like sub-prime mortgages in the early 2000s.

It is likely that some investors will be concerned by these warnings coming from a man who predicted the subprime mortgage bubble that led to the meltdown of the market in 2008 and 2009,” states Keith Speights for the Motley Fool.

“Is Burry right and Buffett wrong,?” he asks. “I don’t think so.”

Despite their growing popularity, a relatively small percentage of stocks are held by index funds (mutual funds or exchange-traded funds). There is a possibility that the stock market will decline, but it won’t be due to an index fund bubble.

Buffett, however, is a long-term investor, and he has always been. According to his argument, money invested in an S&P 500 index fund is a bet on America over the long run. Buffett himself stated that the American economic system “has unleashed human potential as no other system has, and it will continue to do so.”

3. What are some other investment tips from Warren Buffett?

Following are a few Warren Buffett quotes that can be applied along with the 90/10 rule across a wide range of situations and help investors attain financial freedom and enjoy a comfortable retirement;

  • Investing isn’t a game. “I think the degree to which a very rich society can reward people who know how to take advantage, essentially, of the gambling instincts of the American public, the worldwide public — it’s not the most admirable part of the accomplishment.”
  • “If you aren’t thinking about owning a stock for ten years, don’t even think about owning it for ten minutes.” Long-term investment offers numerous benefits that cannot be overstated. You can grow financially and avoid risk at the same time by not reacting to short-term volatility and holding your investment until maturity. Your risk is reduced and your chances of growth are greater if you invest for the long term.
  • You can’t beat an S&P 500 index fund. “I recommend the S&P 500 index fund. I’ve never recommended Berkshire to anybody because I don’t want people to buy it because they think I’m tipping them into something. On my death there’s a fund for my then-widow and 90% will go into an S&P 500 index fund.”
  • “Remember that the stock market is a manic depressive.” It is never recommended to let your emotions influence your stock market investing decisions. Markets can be unpredictable and extremely volatile. You could make a profit and lose it in a matter of days. Taking short-term decisions might not be the best proposition in the long run. In other words, rather than panic or make decisions in haste, make thoughtful, rational, and wise investments.

4. Is it time for you to get a new adviser?

According to Warren Buffett, “The first rule of an investment is don’t lose [money]. And the second rule of an investment is don’t forget the first rule. And that’s all the rules there are.”

Financial advisers may not always follow that rule. After all, there will be downturns. And nobody can beat the market every time, not even Buffet. But, when do you know it’s time to get a new advisor?

Two red flags would be if you’ve experienced losses or you’re constantly underperforming the market. In addition, you should consider whether your adviser invested in accordance with your expectations and goals.

[ Read: Ways to Get Free Money]

 

This post was originally published here.

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Fintech Kennek raises $12.5M seed round to digitize lending

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London-based fintech startup Kennek has raised $12.5 million in seed funding to expand its lending operating system.

According to an Oct. 10 tech.eu report, the round was led by HV Capital and included participation from Dutch Founders Fund, AlbionVC, FFVC, Plug & Play Ventures, and Syndicate One. Kennek offers software-as-a-service tools to help non-bank lenders streamline their operations using open banking, open finance, and payments.

The platform aims to automate time-consuming manual tasks and consolidate fragmented data to simplify lending. Xavier De Pauw, founder of Kennek said:

“Until kennek, lenders had to devote countless hours to menial operational tasks and deal with jumbled and hard-coded data – which makes every other part of lending a headache. As former lenders ourselves, we lived and breathed these frustrations, and built kennek to make them a thing of the past.”

The company said the latest funding round was oversubscribed and closed quickly despite the challenging fundraising environment. The new capital will be used to expand Kennek’s engineering team and strengthen its market position in the UK while exploring expansion into other European markets. Barbod Namini, Partner at lead investor HV Capital, commented on the investment:

“Kennek has developed an ambitious and genuinely unique proposition which we think can be the foundation of the entire alternative lending space. […] It is a complicated market and a solution that brings together all information and stakeholders onto a single platform is highly compelling for both lenders & the ecosystem as a whole.”

The fintech lending space has grown rapidly in recent years, but many lenders still rely on legacy systems and manual processes that limit efficiency and scalability. Kennek aims to leverage open banking and data integration to provide lenders with a more streamlined, automated lending experience.

The seed funding will allow the London-based startup to continue developing its platform and expanding its team to meet demand from non-bank lenders looking to digitize operations. Kennek’s focus on the UK and Europe also comes amid rising adoption of open banking and open finance in the regions.

Featured Image Credit: Photo from Kennek.io; Thank you!

Radek Zielinski

Radek Zielinski is an experienced technology and financial journalist with a passion for cybersecurity and futurology.

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Fortune 500’s race for generative AI breakthroughs

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Deanna Ritchie


As excitement around generative AI grows, Fortune 500 companies, including Goldman Sachs, are carefully examining the possible applications of this technology. A recent survey of U.S. executives indicated that 60% believe generative AI will substantially impact their businesses in the long term. However, they anticipate a one to two-year timeframe before implementing their initial solutions. This optimism stems from the potential of generative AI to revolutionize various aspects of businesses, from enhancing customer experiences to optimizing internal processes. In the short term, companies will likely focus on pilot projects and experimentation, gradually integrating generative AI into their operations as they witness its positive influence on efficiency and profitability.

Goldman Sachs’ Cautious Approach to Implementing Generative AI

In a recent interview, Goldman Sachs CIO Marco Argenti revealed that the firm has not yet implemented any generative AI use cases. Instead, the company focuses on experimentation and setting high standards before adopting the technology. Argenti recognized the desire for outcomes in areas like developer and operational efficiency but emphasized ensuring precision before putting experimental AI use cases into production.

According to Argenti, striking the right balance between driving innovation and maintaining accuracy is crucial for successfully integrating generative AI within the firm. Goldman Sachs intends to continue exploring this emerging technology’s potential benefits and applications while diligently assessing risks to ensure it meets the company’s stringent quality standards.

One possible application for Goldman Sachs is in software development, where the company has observed a 20-40% productivity increase during its trials. The goal is for 1,000 developers to utilize generative AI tools by year’s end. However, Argenti emphasized that a well-defined expectation of return on investment is necessary before fully integrating generative AI into production.

To achieve this, the company plans to implement a systematic and strategic approach to adopting generative AI, ensuring that it complements and enhances the skills of its developers. Additionally, Goldman Sachs intends to evaluate the long-term impact of generative AI on their software development processes and the overall quality of the applications being developed.

Goldman Sachs’ approach to AI implementation goes beyond merely executing models. The firm has created a platform encompassing technical, legal, and compliance assessments to filter out improper content and keep track of all interactions. This comprehensive system ensures seamless integration of artificial intelligence in operations while adhering to regulatory standards and maintaining client confidentiality. Moreover, the platform continuously improves and adapts its algorithms, allowing Goldman Sachs to stay at the forefront of technology and offer its clients the most efficient and secure services.

Featured Image Credit: Photo by Google DeepMind; Pexels; Thank you!

Deanna Ritchie

Managing Editor at ReadWrite

Deanna is the Managing Editor at ReadWrite. Previously she worked as the Editor in Chief for Startup Grind and has over 20+ years of experience in content management and content development.

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UK seizes web3 opportunity simplifying crypto regulations

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Deanna Ritchie


As Web3 companies increasingly consider leaving the United States due to regulatory ambiguity, the United Kingdom must simplify its cryptocurrency regulations to attract these businesses. The conservative think tank Policy Exchange recently released a report detailing ten suggestions for improving Web3 regulation in the country. Among the recommendations are reducing liability for token holders in decentralized autonomous organizations (DAOs) and encouraging the Financial Conduct Authority (FCA) to adopt alternative Know Your Customer (KYC) methodologies, such as digital identities and blockchain analytics tools. These suggestions aim to position the UK as a hub for Web3 innovation and attract blockchain-based businesses looking for a more conducive regulatory environment.

Streamlining Cryptocurrency Regulations for Innovation

To make it easier for emerging Web3 companies to navigate existing legal frameworks and contribute to the UK’s digital economy growth, the government must streamline cryptocurrency regulations and adopt forward-looking approaches. By making the regulatory landscape clear and straightforward, the UK can create an environment that fosters innovation, growth, and competitiveness in the global fintech industry.

The Policy Exchange report also recommends not weakening self-hosted wallets or treating proof-of-stake (PoS) services as financial services. This approach aims to protect the fundamental principles of decentralization and user autonomy while strongly emphasizing security and regulatory compliance. By doing so, the UK can nurture an environment that encourages innovation and the continued growth of blockchain technology.

Despite recent strict measures by UK authorities, such as His Majesty’s Treasury and the FCA, toward the digital assets sector, the proposed changes in the Policy Exchange report strive to make the UK a more attractive location for Web3 enterprises. By adopting these suggestions, the UK can demonstrate its commitment to fostering innovation in the rapidly evolving blockchain and cryptocurrency industries while ensuring a robust and transparent regulatory environment.

The ongoing uncertainty surrounding cryptocurrency regulations in various countries has prompted Web3 companies to explore alternative jurisdictions with more precise legal frameworks. As the United States grapples with regulatory ambiguity, the United Kingdom can position itself as a hub for Web3 innovation by simplifying and streamlining its cryptocurrency regulations.

Featured Image Credit: Photo by Jonathan Borba; Pexels; Thank you!

Deanna Ritchie

Managing Editor at ReadWrite

Deanna is the Managing Editor at ReadWrite. Previously she worked as the Editor in Chief for Startup Grind and has over 20+ years of experience in content management and content development.

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