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Whether you're new to investing or not, if you want one of the simplest and easiest overall portfolios to build long-term wealth, the one I'm about to show you is coming from one of the best investors of all time, Warren Buffett, who has even said that this portfolio will be set for his wife's inheritance after his passing.
But before we get started, my name is Danny Sully, and all I ask is if you do find value in this video that you consider hitting the like and subscribe button for future content like this. With that said, let's first discuss what is the Warren Buffett two fund portfolio. Now, if you don't know much about Warren Buffett, he has been investing into companies pretty much his entire life and has had great success by investing early on into companies like Geico, Coca-Cola, and is well known for his massive stake in Apple's stock.
And so the popularity of Buffett's success is from the company he started called the Berkshire Hathaway, which is a holding company that owns many different businesses across many industries that he invests into and has been doing since 1962. Fast forward to 2025 and he is currently listed as the sixth richest person in the world with a net worth of $154 billion due to Berkshire Hathaway.
I say this to show his credibility in the industry because he said in a 2013 shareholder letter that this two fund portfolio is to be used for his wife's inheritance that is to be 10% of the cash in short-term government bonds and 90% in a very lowcost S&P 500 index fund where he personally suggest Vanguards.
Now, if you don't know what an S&P 500 index fund is, it's pretty much a way for nearly anyone to invest into 500 of the largest publicly traded US-based companies all within one simple purchase. And because the S&P 500 is considered a market cap weighted index, this means the companies that are in the fund are given weight based on their size.
So if we look at the top 10 holdings, you can see companies like Nvidia, Apple, and Microsoft that are all at the top and each make up between 6 to 8% of the entire fund. Because of that, the largest sector in the S&P 500 is information technology at about 36% of the entire fund. And so Warren Buffett believes so much in the S&P 500 that he is known for saying the best thing to do is buy 90% in an S&P 500 index fund.
In fact, he was so confident in the S&P 500 that he bet a million dollars with hedge funds that the S&P 500 would outperform the average return of five hedge funds. And truth be told, from 2008 to 2017, the S&P 500 gained a total of 125% in gains, where the average of the five hedge funds was just about 22% over the entire decade.
And not one hedge fund beat the S&P 500. If you didn't know, beating the S&P 500 is actually very difficult and the majority of the pros struggle to beat it. And the longer the time horizon, the harder it is to achieve. But before we look further into the data, just understand that based on Warren Buffett's recommendation, this means his two fund portfolio would consist of 90% in the S&P 500 where through Vanguard, this can be done through the mutual fund VFI AX or the ETF version that is VO.
And if you are one looking for a bond fund to track the short-term government bond exposure, that means that he would suggest 10% into either Vanguard's mutual fund, that is VSBSX, or the ETF version, that is VGSH. Now, if you don't know the difference between an ETF and a mutual fund, I'll have other content that we've created in the description below that could help you out.
But do know that with ETFs, you can purchase them on nearly any investing platform. So, if you want to check out some of the top ones that are available in the market, I'll have a direct link below to our entire review. But as far as the two fund portfolio, even though this is a general guideline and it's not tailored to any specific individual, it is a super easy way to build a simple, lowcost, and highly effective portfolio that can do very well over time.
And here's exactly why it works. To start this off, understand that the reason why investing into a lowcost index fund like the S&P 500 is so highly recommended is because it's super easy to buy, provides great diversification, comes at a very low cost, and historically, it has proven to achieve great returns for investors with patience.
In fact, the S&P 500 since 1957 has delivered an average annual return of 10.54%. And if you were to start today with nothing and invest $600 per month throughout your entire career, averaging that same return over time, then you would end up with almost $4 million. And if that were in a Roth IRA, that means the final amount would be completely tax-free.
But aside from that, realize that with an ETF like V, it has an expense ratio of 0.03%, which means for every $10,000 that you invest, that is $3 per year in fees. And based on the previous example, by doing this, the total cost and fees after all the years would come out to be roughly $30,000. So, not only is the S&P 500 a credible investment and super cheap, but the fact that you are getting instant exposure to 500 of the largest US-based companies, it significantly reduces the amount of risk that you have to potentially lose money, especially compared to only picking a handful of individual stocks.
And then as far as short-term government bonds, by adding this, it adds safety so that in volatile markets, the worst case scenarios of needing cash, you can keep your S&P 500 index fund invested for the long term. And interestingly enough, from a 30-year study of the S&P 500 from 1995 to 2024, if you invested $10,000 and stayed fully invested throughout the entire time, you would have ended up with $224,000.
But the point to get across here is that if you missed just 10 of the best days out of the total 30 years, then your portfolio would be 54% lower, making that a total ending of $102,000. And even more important to understand is that 50% of the best market days were reported to happen during a bare market.
All in all, staying invested into US equities has proven to be a strong option for those looking to build wealth long term and is especially important for retirement investing to ensure that you are on track at the least. Which I will say, we just recently made a video on why trying to time the market could cost you thousands of dollars.
So, I'll have that video linked in the description below if you want to check it out. But to give you an idea on how well a two-fund portfolio like this would have done for you if you invested $100,000 into this portfolio over the past 10 years, the data shows it would have averaged a 13.77% annual return, turning $100,000 into roughly $350,000 if you held the entire time, where the best year was up 28% and the worst year was down 17.
But knowing that, let's now go over how this twofund portfolio actually beats the pros. As I mentioned earlier, Warren Buffett's bet with the hedge funds was just one of the many statistics that show how the S&P 500 tops the majority of the pros. Now, there are exceptions, but when I hear from another legendary investor, Ray Dalio, say how trying to time the market is harder than competing in the Olympics, it made me realize years ago that taking on too much risk without proper awareness is not likely to be in your favor.
In fact, studies report that even a blindfolded monkey throwing darts at a financial newspaper could select a portfolio that would do just as well as ones carefully selected by experts. This is exactly why I believe the goal when it comes to investing into the markets is to maximize the potential returns that you could earn while minimizing the downside risk of losing money.
You see, if you only pick a few stocks, you could very well see high returns, but that is also likely to come with very high risk. And with retirement savings, it's not something you want to roll the dice on. And so to show you data on this topic, it states that from 1927 to 2020, it is computed that over that time looking at 20-year rolling periods, only 21.4% of US stocks have survived and outperformed the market.
Even looking at 10 or 5year rolling periods, the numbers aren't that much higher. And also notice that over 20-year rolling periods, the data shows that 52.4% of the companies were delisted. to truly show you an amazing visual to take away from this video, realize that the longer you hold onto a broad index fund like the S&P 500, the more likely you are to succeed.
So, if you look at the blue chart that is based on three-year rolling periods, there have been times where you would have averaged negative returns, and the volatility could be very high. If you extend that to 10 years, then the volatility is greatly reduced with only a few times you would have averaged at or below 0%.
Then, looking at 20 years, you notice it improves. But remember this because over a 30year holding period, nearly every case study returned at least 8 to 12% of annual returns, showing that the S&P 500, if held long enough, has not failed any of its investors so far in history. Which, by the way, this goes back all the way to 1928, which is almost a century of data.
But all in all, to take away from this, realize that investing into actively managed funds or having professionals manage your money will significantly increase fees, which can add up a ton over time. And for those that are picking investments trying to outperform the market, data shows that the odds aren't really in your favor.
So by considering a simple portfolio like this, you remove high fees, the urge to chase hot stocks and you begin to realize that staying invested for the long term can actually show results if you stick with it long enough. But in the end, realize the lesson to be learned from this portfolio and for watching this entire video is that whether you decide to use this portfolio or not, you don't need to over complicate a portfolio to beat the pros.
Typically, a handful of index funds at most will cover everything you need. Now, if you want to learn more about index funds, we have an entire index fund cheat sheet and playlist on videos we've created that I'll have linked in the description below. And don't forget that with ETFs, you can purchase them on nearly any investing platform, and many allow you to start with just $1.
So, if you want to see some of the top brokerage accounts available in the market, I'll have a direct link below to our entire review. End of the day, our mission at Invest Lane is to help you save and invest wisely to build lasting wealth. So, please do whatever you believe is best for your situation.
This is not financial advice and you must do your own research. which if you found value in this video, don't forget to hit the like, subscribe, and notifications button for future content like
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