Warren Buffett, the legendary investor behind Berkshire Hathaway, has revealed directives for his estate in his 2013 shareholder letter. The plan involves specific investment instructions for a trustee managing funds for his wife's benefit.
"One bequest provides that cash will be delivered to a trustee for my wife's benefit," Buffett wrote. "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."
Buffett expressed confidence in this straightforward strategy, which requires no constant monitoring or active trading. His preference for index funds stems from a belief that stock picking is not optimal for average investors.
At the 2021 shareholders meeting, Buffett stated frankly, "I do not think the average person can pick stocks." He views index funds as a passive investment strategy accessible to everyone, including those without substantial wealth.
The S&P 500, Buffett's preferred index fund for low-cost investing, surged 24% in 2023. Investing in such a fund provides exposure to 500 large companies across various industries.
For the remaining 10% allocation, Buffett recommended short-term government bonds. These bonds appeal to those seeking lower-risk investments or a stable, predictable income source. They are also more liquid than long-term bonds, allowing easier access to funds without significant penalties.
Berkshire Hathaway delivered an overall gain of 4,384,748% from 1964 to 2023 under Buffett's leadership. Despite this track record, his estate plan diverges from expectations of continuing his active investment approach.