How to build Warren Buffett's 90/10 asset allocation with ASX ETFs

Buying shares in ASX ETFs can be a great way to get your portfolio started.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

If you're just getting started out with investing and you don't have a lot of money behind you, buying shares in ASX ETFs can be a great way to get your portfolio started.

Not only is it a straightforward process, but one of the best things about investing in an ETF is the broad exposure you can get to different parts of the market without investing in several companies yourself.

And with many of the world's investment elite saying ETFs are a great way to build wealth, it's something that I'll be focused on myself in the following years.

a woman

What is Warren Buffett's 90/10 asset allocation?

You may recall Warren Buffett's 90/10 portfolio asset allocation for retirement investing. He says to invest 90% of your money into a low-fee stock index fund and 10% into short-term treasuries.

The focus with the 90/10 asset allocation is having exposure to the stock market while hedging any downside risk with short-term treasuries.

How can you build Warren Buffett's 90/10 asset allocation with ASX ETFs?

You can build your own 90/10 asset allocation using ASX ETFs that give you exposure to the ASX200 and Australian Government Bonds.

The Vanguard Australian Share ETF (ASX: VAS) tracks the performance of the ASX 200. With this ETF you get exposure to Australia's biggest companies like BHP Group Ltd (ASX: BHP), Wesfarmers Ltd (ASX: WES) and the Commonwealth Bank of Australia (ASX: CBA) without needing to buy individual shares in each company. This fund charges a 0.14% management fee.

For exposure to Australian Government Bonds, you could buy shares in the SPDR S&P/ASX Australian Government Bond Fund (ASX: GOVT). It tracks the S&P/ASX Government Bond Index, and it can help you hedge against potential market downturns. The fund charges a management fee of 0.22% and has a current yield of 3.47%.

But, what if you still want to pick your own stocks?

When you have a keen interest in finance and investing, the thought of buying shares in an ASX 200 ETF and Australian Government Bonds ETF could make you feel like you're missing out on picking stocks yourself. You can have the best of both worlds, though.

If you still want to pick your own stocks while building wealth through an ASX 200 ETF, decide on what proportion of your portfolio you want to set aside for picking your own investments. For example, if you have a lower risk appetite like me you may decide on an 80/10/10 split between an ASX 200 ETF, a short-term treasuries ETF and 10% for your own stock picks.

Leaving aside part of your asset allocation for making your own stock picks will give you exposure to the broader market with an ETF while giving you ownership over building out your own stock portfolio. With this approach you can invest like Warren Buffett would while still having some personalised decisions to make up your portfolio.

If you're looking for some blue chip companies to start your stock portfolio, check out these 3 blue chips that have been rated a buy for 2019.

Motley Fool contributor Nicola Smith has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Investing Strategies

Woman with her kitten on a laptop in her home office.
Growth Shares

3 top ASX shares for beginners to buy now

I think starting with businesses you can actually understand makes the ups and downs of investing much easier to handle.

Read more »

A pink piggybank sits in a pile of autumn leaves.
Dividend Investing

How much passive income can I earn off the big four bank dividends in the next year?

Which bank stock is the best for passive income?

Read more »

Male hands holding Australian dollar banknotes, symbolising dividends.
Dividend Investing

Check out the massive dividend this ASX financial company just announced

This company's shareholders are in the money.

Read more »

Happy investor on tablet with finance graphs rising in overlay.
Growth Shares

2 ASX shares I want to hold until 2030 and beyond

Both businesses have already achieved plenty. The amount of growth still available is why I would want to own them…

Read more »

A woman wearing glasses and a black top smiles broadly as she stares at a money yarn full of coins.
Dividend Investing

Why this ASX 200 share is a fantastic choice to build a second income

ASX shares can deliver great passive income. Here’s one of the best…

Read more »

Close-up of a business man's hand stacking gold coins into piles on a desktop.
Dividend Investing

$10,000 invested in these dividend ETFs will bring how much passive income?

These funds provide consistent income.

Read more »

Man holding Australian dollar notes, symbolising dividends.
Dividend Investing

2 ASX shares with dividend yields of 10%

These businesses have very attractive dividend yields…

Read more »

Hand holding Australian dollar (AUD) bills, symbolising ex dividend day. Passive income.
Dividend Investing

How many Coles shares do I need to buy to generate $10,000 in passive income?

Coles is a resilient choice for dividends…

Read more »