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Warren Buffett recommends a low-cost S&P 500 index fund and short-term U.S. government bonds for investors

Warren Buffett has advocated for a simple investment strategy that prioritizes low costs and diversification over complexity. He suggested a 90/10 rule, which involves allocating 90% of a portfolio to a very low-cost S&P 500 index fund and 10% to short-term U.S. government bonds. Buffett argued that this approach provides a straightforward way for ordinary investors to manage their portfolios while avoiding the difficulty of trying to consistently outperform the market through high-fee managers. Data supports this view, as a large majority of actively managed large-cap mutual funds underperformed the S&P 500 over various long-term periods. The stock portion of the strategy offers exposure to 500 leading U.S. companies, while the short-term bonds provide a conservative counterweight to stock-market swings. This allocation helps ensure that investors have access to liquid assets during periods of volatility, reducing the need to sell stocks at depressed prices. Buffett's strategy emphasizes that keeping costs low and avoiding unnecessary complexity can improve financial fitness without trying to outsmart the market.

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