If you've spent more than five minutes reading about investing, you've probably come across the 70/30 rule. It gets repeated constantly in personal finance circles, and like most famous rules, people cite it without really knowing where it came from or whether it applies to their situation.
The short version: 70% of your portfolio in stocks, 30% in bonds. Growth with a safety cushion.
Here's what most people don't know. Warren Buffett's own instructions for his wife's trust specify 90% stocks and just 10% bonds. So the rule that gets named after him is actually more conservative than what he set up for his own family.
Where did the 70/30 rule come from?
The 70/30 rule isn't something Buffett invented. It's a classic allocation model that financial advisors have used for decades, built on the idea that a portfolio should balance growth (stocks) with stability (bonds). The ratio makes particular sense for investors in their 40s and 50s who are approaching retirement: enough stocks to keep growing, enough bonds to absorb a crash if one hits at the wrong time.
Buffett's name got attached to it for two reasons: his decades of advocating for simple, low-cost index funds, and a letter that became public. In his 2013 annual letter to Berkshire Hathaway shareholders, he wrote about what he'd told his estate's trustee:
"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 believe the trust's long-term results from this policy will be superior to those attained by most investors."
That's a 90/10. The "Buffett rule" that circulates online is a more conservative version of what he personally recommended.
Why stocks?
Stocks are ownership stakes in companies. When companies grow and generate profit, shareholders benefit. Over long enough time horizons, stocks have been the most effective wealth-building tool available to regular people.
| Period | S&P 500 average annual return |
|---|---|
| Last 10 years (2014–2024) | ~13.1% |
| Last 30 years (1994–2024) | ~10.7% |
| Since 1926 | ~10.2% |
No other mainstream asset class has matched that over a century of data. Bonds haven't. Gold hasn't. Savings accounts certainly haven't. The problem is that stocks don't go up smoothly.
- 2000–2002 dot-com crash: S&P 500 fell ~49%
- 2008–2009 financial crisis: S&P 500 fell ~57%
- March 2020 (COVID): S&P 500 fell ~34% in 33 days
Someone with 100% stocks in February 2020 who needed to sell in April 2020 lost a third of their money. Someone who could wait two years recovered everything and then some. Time horizon is the whole game.
Why bonds?
Bonds are loans. You lend money to a government or corporation, and they pay you back with interest over a set period. US Treasury bonds are widely considered the safest bonds available, backed by the federal government's ability to tax and, if needed, print money.
They don't grow fast. A 10-year Treasury bond currently yields around 4–5% annually. But they tend to hold value when stocks fall (though this relationship was less reliable in 2022 when both dropped together). During the 2008 crisis, long-term US Treasuries gained roughly 25% while stocks lost 57%.
The 30% bond allocation does two things. First, it limits how much your portfolio drops during a crash. Second, it gives you something to sell if stocks fall hard, so you can buy more stocks at lower prices. That second move, called rebalancing, is one of the few free lunches in investing.
70/30 vs 90/10: what's the actual difference?
Running the numbers on a $10,000 portfolio over 30 years, using historical averages (stocks ~10%/yr, bonds ~4%/yr):
| Allocation | Blended annual return | $10k after 30 years |
|---|---|---|
| 100% stocks | 10.0% | $174,494 |
| 90/10 (Buffett) | 9.4% | $152,203 |
| 70/30 (classic) | 8.2% | $110,524 |
| 60/40 (conservative) | 7.6% | $93,426 |
Over 30 years, the difference between 70/30 and 90/10 is about $41,000 on an initial $10,000 investment. That gap compounds further the more you put in. The other side of it: a 40% market crash hits a 90/10 portfolio for roughly a 36% loss, versus 28% at 70/30. You're buying higher expected returns by accepting deeper short-term pain.
What young investors should actually do
Most 70/30 advice skips the part that actually matters: your time horizon counts more than your age. If you're 25 and investing money you won't touch for 30+ years, a crash in year 2 is essentially irrelevant. The market has recovered over every 15-year period in its history. Holding 30% bonds at 25 means deliberately dragging down returns for a stability benefit you don't yet need.
| Years until you need the money | Suggested stock allocation |
|---|---|
| 25+ years | 90–100% |
| 15–25 years | 80–90% |
| 10–15 years | 70–80% |
| 5–10 years | 60–70% |
| Under 5 years | 40–60% or less |
That's why Buffett chose 90/10 for his wife's trust. The money has a long runway and won't be needed on a fixed schedule.
What this looks like with actual ETFs
You don't need individual stocks or bonds. Both allocations can be built with three funds:
Classic 70/30
- 50% VTI — Vanguard Total Stock Market (~4,000 US companies, 0.03%/yr)
- 20% VXUS — Vanguard Total International Stock (0.07%/yr)
- 30% BND — Vanguard Total Bond Market (US bonds, 0.03%/yr)
Buffett 90/10
- 70% VTI — US total market
- 20% VXUS — International stocks
- 10% SGOV — iShares 0–3 Month Treasury Bond
Total annual cost for either: under 0.05%. Actively managed mutual funds typically charge 0.5–1.5% per year and most underperform these indexes over 10-year periods.
What Buffett has actually been consistent about
The 70/30 vs 90/10 debate is secondary to the message Buffett has repeated across every decade of his career: buy a low-cost S&P 500 index fund, keep buying regardless of what the market is doing, don't sell when it crashes, and wait. That's the whole thing.
In a 2017 CNBC interview, he said: "Consistently buy an S&P 500 low-cost index fund. I think it's the thing that makes the most sense practically all of the time."
Someone putting $300/month into a 70/30 portfolio will beat someone who invested $50,000 once and then sold during the first crash. The ratio matters less than the habit.
Where people go wrong with the 70/30 rule
Applying it too young
In your 20s with 30+ years until retirement, a 30% bond allocation is deadweight. Start aggressive and shift toward bonds as you actually approach the date you'll need the money.
Not rebalancing
If stocks have a good year, your 70/30 might drift to 80/20 without you noticing. Rebalance once a year: sell some of whichever asset grew beyond its target, buy the other to restore your ratio.
Using expensive funds
Fees compound exactly like returns do. A 1% annual fee on a $100,000 portfolio over 30 years costs more than $130,000 in lost growth. The 70/30 strategy in cheap index funds beats a more aggressive allocation in expensive actively-managed funds.
Treating the ratio as fixed forever
Your allocation should shift as your timeline shortens. A calendar reminder every three to five years to review your ratio is worth more than any other portfolio optimization you could do.
Frequently asked questions
Is the 70/30 rule the same as the 60/40 rule?
Similar concept, different split. The 60/40 portfolio is more conservative and has historically been the default "balanced" option for retirement accounts. Both are designed for investors in their 40s and 50s who want growth with meaningful downside protection. The 70/30 just tilts a bit more toward stocks.
What did Buffett actually recommend for individual investors?
In his 2013 shareholder letter, he specified 90% in a low-cost S&P 500 index fund and 10% in short-term government bonds for his wife's trust. For everyone else, his consistent advice has been the same index fund approach without bothering to time the market or pick individual stocks.
Should I use the 70/30 rule in my Roth IRA?
The rule works in any account type: Roth IRA, 401(k), or taxable brokerage. If you hold accounts in multiple places, look at your total allocation across all of them rather than each account in isolation. Generally, bonds belong in tax-advantaged accounts since their interest gets taxed as ordinary income.
What happens to 70/30 if interest rates stay high?
High rates hurt the price of existing bonds since newer bonds pay more. If you hold a fund like BND, its price may drop when rates rise. Over time, higher rates mean your bond fund's reinvested dividends buy higher-yielding bonds, so the damage is temporary for long-term holders. Rate cycles matter less than your overall allocation strategy if you're holding for decades.
The bottom line
The 70/30 rule is a reasonable starting point for investors who are 10 to 20 years from retirement. For anyone younger, it's more conservative than it needs to be.
Whatever ratio you pick, two things matter more than the exact split: how cheap your funds are, and whether you actually hold through the bad years. A mediocre allocation you stick with beats an optimal one you abandon.
