Buffett’s 90/10 rule: Why the Vanguard S&P 500 ETF remains the core holding for passive investors

Warren Buffett has reiterated his longstanding recommendation for non-expert investors to allocate 90% of their portfolio to a low-cost S&P 500 index fund, specifically citing Vanguard’s offering as the vehicle for this strategy. The approach, which prioritises simplicity and long-term wealth creation over market timing or individual stock selection, was originally outlined in a 2013 letter to Berkshire Hathaway shareholders. Buffett argued that such a policy would yield superior long-term results compared to those attained by most investors, including professional money managers who frequently fail to outperform the market consistently.

The Vanguard S&P 500 ETF (VOO) tracks the benchmark index with an annual fee of just 0.03% and currently holds over $950 billion in assets. This massive scale underscores the fund’s role as a primary conduit for passive investment strategies. The S&P 500 is a market-capitalisation-weighted index that automatically adjusts sector allocations over time, having previously seen energy and financials as dominant sectors before the recent shift towards technology.

Current market conditions present a specific test for this passive strategy. The S&P 500 index currently holds a 33% allocation to the technology sector, up from approximately 20% a decade ago. Despite this heavy weighting in tech and growth stocks, Buffett’s philosophy remains focused on broad market exposure rather than sector timing. The index’s structure allows it to capture the U.S. economic growth engine, with Q1 2026 earnings projected to grow by approximately 28% year-on-year, marking the strongest performance since 2021.

This buy-and-hold approach contrasts sharply with active management strategies, such as those promoted by The Motley Fool’s Stock Advisor service. The service claims a total average return of 993%, contrasting this with the S&P 500’s 207% return, and lists 10 specific stocks as top buys, excluding VOO. Historical performance examples cited by the service include a $1,000 investment in Netflix in December 2004 growing to $469,293, and a $1,000 investment in Nvidia in April 2005 growing to $1,381,332.

Despite the allure of high-conviction stock picks during periods like the artificial intelligence boom, Buffett’s framework is designed for those who should not be trying to pick individual winners. By investing in the index via the Vanguard S&P 500 ETF, investors gain long-term growth potential with rock-bottom fees. The Motley Fool, which originally published this analysis, has a disclosed position in and recommends the Vanguard S&P 500 ETF, acknowledging the enduring validity of Buffett’s simple, low-cost index strategy.