The 90/10 rule is an investment allocation strategy that allocates 90% of a portfolio to equities and 10% to short-term fixed-income instruments. The strategy was popularized by Warren Buffett in his 2013 letter to Berkshire Hathaway shareholders. There, he outlined instructions for the cash bequest left in a trust for his wife after his death: 90% in a low-cost S&P 500 index fund and 10% in short-term U.S. government bonds.¹ His argument was that simplicity, low cost and broad equity exposure would serve a passive, long-term investor better than complex or high-fee actively managed strategies.

A financial advisor can help you assess whether a 90/10 portfolio allocation supports your long-term financial plan.

What Is the 90/10 Rule?

The 90/10 rule is a portfolio allocation framework:

• 90% of investable assets in equities, typically a broad stock market index fund
• 10% in lower-risk, short-duration fixed-income instruments, such as Treasury bills or short-term government bond funds

The core logic is that equities drive long-term portfolio growth. Meanwhile, the 10% fixed-income allocation provides a modest buffer against volatility.

It serves as a source of relatively stable value that can be drawn on or rebalanced from during market downturns. The allocation does not attempt to significantly reduce risk the way a more balanced portfolio would. Instead, it accepts high exposure to equity market fluctuations in exchange for maximizing long-term growth.

The chart below shows how the 90/10 rule compares to other common asset allocations: 

The Warren Buffett Example

The 90/10 rule entered mainstream financial conversation through Warren Buffett’s 2013 letter to Berkshire Hathaway shareholders. In the letter, Buffett disclosed the instructions he had left for the trustee managing his wife’s inheritance after his death. His recommendation was explicit: “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 was not prescribing a universal strategy for all investors. He was describing a specific set of instructions for a passive, long-term inheritance portfolio. This portfolio would not be actively managed, would not require near-term income generation and would benefit from decades of compounding without interference.

The simplicity was deliberate: the fewer decisions required, the fewer opportunities to make costly mistakes. Buffett expressed a preference for index funds for several reasons, including these three.

Lower Fees

Actively managed equity mutual funds have historically charged considerably more than index funds. In 2025, the simple average expense ratio across all equity mutual funds was 0.40%, while the average expense ratio for bond mutual funds was 0.36%. ² By contrast, a low-cost S&P 500 index fund from Vanguard, Fidelity or Schwab charges as little as 0.02% to 0.04% annually. ³ Over decades, that fee difference compounds into a substantial difference in net returns. 

Consistent Long-Term Outperformance vs. Active Management

Buffett has long argued, and S&P’s SPIVA Scorecard data has repeatedly confirmed, that the large majority of actively managed funds underperform their benchmark index over long horizons after fees. ⁴ For U.S. large-cap funds measured against the S&P 500 through year-end 2025, roughly 90% underperformed over 15 years. ⁵ A passive index fund, by contrast, captures market returns, minus only minimal costs and a small tracking difference. 

Broad Diversification

An S&P 500 index fund provides exposure to 500 large-cap U.S. companies across all major sectors. This could help reduce the risk of individual stock concentration without requiring ongoing research or active management.

How the 90/10 Rule Works in Practice

Implementing the 90/10 rule is straightforward. However, a few decisions about fund selection, account placement and rebalancing frequency all affect how well it works over time.

90% Equity Allocation

• S&P 500 index funds: Track the 500 largest U.S. companies by market capitalization. Common options include Vanguard’s VOO ⁶ or VFIAX ⁷ , Fidelity’s FXAIX ⁸ and Schwab’s SWPPX ⁹ . These funds have expense ratios as low as 0.015%.
• Total U.S. market index funds: Extend beyond the S&P 500 to include mid-cap and small-cap stocks, providing slightly broader diversification. Vanguard’s VTI and Fidelity’s FZROX are common examples.
• Total world or global equity index funds: Add international developed and emerging market exposure alongside U.S. equities, reducing home-country concentration. Some investors prefer this broader diversification within the 90% equity sleeve.

10% Fixed Income Allocation

• Short-term Treasury bills or T-bill funds: This lines up with Buffett’s original recommendation of short-term government bonds. Short-term government debt has essentially zero credit risk and minimal interest rate risk due to the short duration. Treasury bill yields fluctuate with the federal funds rate and can offer a modest edge over money market yields, though the gap is typically small and fund-dependent.
• Short-term U.S. government bond funds: Funds tracking short-duration government bonds (one- to three-year maturity range) provide slightly higher yield than T-bills with minimal additional risk.
• What to avoid in the 10% sleeve: Long-term bonds, high-yield corporate bonds and foreign bonds all entail more risk than the 10% allocation is intended to bear. The fixed-income sleeve serves as a stability buffer.r, not a return driver.

Rebalancing

Equities outperform bonds over most extended periods. Therefore, a 90/10 portfolio will naturally drift toward a higher equity allocation over time. After a strong equity year, the portfolio might be 93% equities and 7% fixed income before rebalancing. Annual rebalancing is sufficient for most long-term investors and prevents allocation drift from affecting the portfolio’s risk profile.

Example:

• A $100,000 portfolio starts with $90,000 in an S&P 500 ETF and $10,000 in short-term Treasuries.
• After one year, the S&P 500 returns 10% and the Treasuries return 4%: $90,000 × 1.10 = $99,000 in equities, and $10,000 × 1.04 = $10,400 in Treasuries.
• The portfolio is now worth $109,400 ($99,000 + $10,400): $99,000 in equities (90.5%, or $99,000 ÷ $109,400) and $10,400 in Treasuries (9.5%, or $10,400 ÷ $109,400).
• To restore the 90/10 split, the target equity value is $98,460 ($109,400 × 0.90) and the target Treasury value is $10,940 ($109,400 × 0.10). That means selling $540 in equities ($99,000 − $98,460) and moving it into Treasuries ($10,400 + $540 = $10,940).

In tax-advantaged accounts like IRAs and 401(k)s, rebalancing creates no immediate tax consequences. However, in taxable brokerage accounts, selling appreciated equity positions to rebalance triggers capital gains.

One tax-efficient alternative: Direct any contributions to the underweighted asset class rather than selling to rebalance.

Who Should and Shouldn’t Use the 90/10 Rule

The 90/10 allocation is not a universal strategy. Whether it is appropriate depends almost entirely on time horizon, income needs and risk tolerance. After all, a portfolio can decline sharply in value before potential growth.

Who Should Use the 90/10 Rule

Early to mid-career investors are one potential fit. These investors have 20-plus year time horizons. For example, a 30- or 35-year-old investing for retirement in 30 years can absorb multiple severe market downturns and still benefit from decades of compounding. The portfolio has time to recover from bear markets before the funds are needed.

Investors with high risk tolerance are another. The S&P 500 fell roughly 57% peak to trough during the 2008–2009 financial crisis, and about 34% during the COVID-19 drawdown in early 2020. ¹⁰ A 90/10 portfolio would track those declines closely. Investors who would panic-sell during such a drawdown should not be in a 90% equity portfolio, regardless of time horizon.

Passive, long-term accumulation accounts round out the list. Buffett’s original context, a trust portfolio not requiring active management or near-term distributions, remains the ideal use case.

Who Should Not Use the 90/10 Rule

Investors near or in retirement are one example. Those within five to 10 years of retirement face sequence-of-returns risk, the danger that a major market downturn early in retirement can permanently damage a portfolio’s ability to support future withdrawals. A 50% equity drawdown at age 62, combined with ongoing withdrawals, can deplete a portfolio far faster than historical averages suggest, since each withdrawal locks in losses right when the market is down.

Investors drawing down a portfolio for income face a related problem. Anyone who regularly withdraws for recurring needs, like living expenses or medical costs, generally needs a more conservative allocation than 90/10 provides, since the equity component’s volatility introduces too much risk during the withdrawal phase.

Investors with low risk tolerance round out the list, for a different reason. Risk tolerance is behavioral, not just mathematical. Selling equities during a bear market locks in those losses, and an investor who does so may never re-enter the market at the lower prices that would have worked in their favor, eliminating the long-term advantage the strategy is meant to produce.

How a Financial Advisor Can Help You Apply the 90/10 Rule

The 90/10 rule could seem simple in principle, but investors can still benefit from professional guidance in several areas that help avoid the costly mistakes many make when trying to run this strategy on their own.

Assess Individual Factors

A financial advisor can evaluate whether 90/10 is appropriate for your specific situation by looking at a few key areas together: your time horizon, how your income needs will change as you age, and your behavioral risk tolerance, meaning not just how much risk you can mathematically afford to take, but how much volatility you can actually stomach without making a costly decision in a downturn.

Determine Account Placement

Where you hold each part of a 90/10 portfolio matters almost as much as the split itself. An advisor can help decide how to divide the strategy across a taxable brokerage account, a traditional IRA and a Roth IRA in a way that minimizes your overall tax burden. Equities with high expected appreciation are often better placed in a Roth IRA, where long-term gains can grow and eventually be withdrawn tax-free. Interest-generating fixed-income holdings, by contrast, are often better suited to tax-advantaged accounts in general, since that interest would otherwise be taxed annually as ordinary income in a taxable account.

Develop a Rebalancing Strategy

An advisor can also structure rebalancing to minimize capital gains in taxable accounts. For example, they may direct new contributions toward the underweighted asset rather than selling appreciated positions, or recommend tax-loss harvesting on equity positions that have declined in value.

Prepare for Retirement

The most important, and most commonly overlooked, application of financial advice in this context is determining when and how to shift away from a 90/10 allocation as retirement approaches. A glide path, a systematic reduction in equity exposure over time, should be planned well in advance rather than improvised during a market decline, especially given how much sequence-of-returns risk can amplify a poorly timed drawdown. An advisor can build a specific reallocation schedule tied to your retirement date and income needs, gradually reducing equity exposure to a level appropriate for the withdrawal phase before you actually need to start drawing down the portfolio.

Bottom Line

The 90/10 rule allocates 90% of a portfolio to equities, ideally a low-cost S&P 500 index fund, and 10% to short-term government bonds. The strategy is generally intended for early- and mid-career investors with long time horizons and the ability to tolerate significant short-term market declines. Investors nearing retirement, those who expect to make regular withdrawals or those who are likely to sell stocks during market downturns may need a different allocation. Annual rebalancing helps maintain the target allocation as stocks grow faster than bonds over time.

“The 90/10 rule is a time-tested strategy for investors with a high appetite for risk. While it’s not appropriate for investors with less risk tolerance or a shorter time horizon, the principle of a standard stock to bond allocation can be applied broadly. Of course, tax treatment, fund fees, and rebalancing must all be addressed for the strategy to work as intended,” said Tanza Loudenback, CFP®.

Tanza Loudenback, CFP® provided the quote used in this article. Please note that Tanza is not a participant in SmartAsset AMP, is not an employee of SmartAsset and has been compensated. The opinion voiced in the quote is for general information only and is not intended to provide specific advice or recommendations.

Investment Planning Tips

• A financial advisor can help determine whether the 90/10 rule fits an investor’s situation and build a plan for shifting away from it as retirement nears. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• For investors weighing whether the 90/10 rule fits their portfolio, comparing it against a broader roundup of 13 investments to consider can help clarify how a two-asset approach stacks up against more diversified alternatives.

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