Buffett’s Asset Allocation Advice: Take It … with a Twist

Abstract

One of the most important decisions retirees face is theasset allocation of their portfolios. They can have a staticor a dynamic allocation, and simplicity usually favors the former. Warren Buffett recently added another vote for static allocations by revealing that he had advised a trustee to split the bequest his wife will receive to 90% in stocksand 10% in short-term bonds. The evidence discussed here shows that, relative to other static allocations, a 90/10 splithas a very low failure rate and provides investors with good upside potential and downside protection. The evidence also shows that two minor twists to the 90/10 split result intwo very simple dynamic strategies with even better upside potential and downside protection.

TOPICS: Wealth management, portfolio construction, risk management, performance measurement