Buffett’s Simple Investment Advice to Wife After His Death

The popular Berkshire Hathaway (BRK) Annual Letter to Shareholders by Warren Buffett is now available to the public. Download it here [pdf].

I’ve been haltingly working on making preparations for my family in case of my premature demise. I’ve done a number of things, but I’m still not sure if my wife can manage our investments when I’m gone. Should I try to teach her, even if she has little interest? Should I find an advisor? Should I hire him/her now, even though I am a control freak? Interestingly, Buffett addresses this issue partially in his letter.

First, Buffett repeats his advice that while he doesn’t believe in efficient markets, he does believe that non-professionals should invest their money in low-cost index funds.

My money, I should add, is where my mouth is: What I advise here is essentially identical to certain instructions I’ve laid out in my will. One bequest provides that cash will be delivered to a trustee for my wife’s benefit. (I have to use cash for individual bequests, because all of my Berkshire shares will be fully distributed to certain philanthropic organizations over the ten years following the closing of my estate.) 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. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers.

Of course, I’m sure the sum set aside would be enough even if kept 100% in cash. But index funds were still a surprise to me given how many smart money managers Buffett knows. At the minimum, I figured he’d leave a big ole’ pile of BRK shares (managed by some of those smart people that he already hired). But I forgot that Buffett has already committed his BRK shares to charity.

Buffett’s simple advice made me think about my plans again. I would also leave my wife a relatively simple index fund portfolio and a paid-off house. My casual advice given to her so far is that she can spend 2-3% of the total balance each year without worrying about the money running out. With the life insurance proceeds, that 2%-withdrawal value is a bit more than what we spend now, so it shouldn’t be too hard.

If she needs help, she can contact the Certified Financial Planner that Vanguard offers clients ($50k in assets gets you access to a discounted plan from a CFP). I figure that even the cookie-cutter portfolios that they may recommend won’t be too bad in the big picture. I know this is not a complete plan, but well, I also don’t want my wife going to a high-fee manager.

Comments

  1. tom madison says:

    Yeah I was by his choice of fund. I mean its a cheap S&P 500 fund but has a higher expense than just VTI…and VTI seems like it out preforms it no matter what time period I look at.

    I would probably leave my wife Berkshire stock…although it does not pay a dividend….

  2. And his wife’s opinion on this is?

  3. Warren Buffett = The Wisest Investor Alive Today w/ a Golden Heart

    Such a great man.

  4. What do you consider “high fees” for a mngr? 1% of total portfolio per year?

  5. link seems to be broken, to the letter from warren

  6. Glad to see that Warren Buffet and I are on the same page :) I wrote a post about my simple plan for my wife if things don’t not go as planned http://insourcelife.com/if-shit-hits-the-fan. Hopefully she never has to worry about it, but it’s good to have something like this discussed and ready.

  7. What are you thoughts on Buffet totally ignoring the EX-US market for his asset allocation for his wife? I seem to be finding more and more “professionals” who have a much higher weighting to the US than what US Market Cap of total Global Market Cap would suggest.

    It also seems to me that EX-US has a shown a recently higher correlation to US markets further bolstering Buffet’s view. I would be willing to speculate that this higher correlation will continue.

    Thanks,

    SK

    • His specific asset allocation is definitely in line with his previous comments. He thinks that the US is still the best place for business growth opportunities (I don’t think he really cares about correlations as a value investor) and he isn’t a big fan of a large allocation to bonds in the current interest rate environment. BRK has bought some foreign companies, but most of them are still domestic.

  8. Wow…WOW! I don’t know why this just clicked for me. I have been trying to get my wife into investing for years. I have literally laid awake at night wondering what would happen to my family if I died. Of course I have sufficient life insurance but I always wondered what would happen if that money ran out because my wife didn’t know the first thing about investing. This advice is so practical and easy that I could write it up into a document and have her read it off to the brokerage as she invests the money.

    Thank you!

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