Confused about the stock market? Worried that valuations are stretched and vulnerable to rising interest rates, but nervous about bailing and missing a rebound? The widely anticipated annual letter to shareholders of Omaha-based Berkshire Hathaway conglomerate by Warren Buffett offers timely advice.

The market performance of Berkshire Hathaway is striking. The compounded average annual gain since 1965 has been 20.9 percent, vs. 9.9 percent for the Standard & Poor's 500 equity index.

For individual investors, three insights in the latest letter stood out. The first is his emphasis on building a healthy margin of financial safety. Buffett writes that Berkshire doesn't carry anywhere near the amount of debt that it could afford. "We have intentionally constructed Berkshire in a manner that will allow it to comfortably withstand economic discontinuities, including extremes such as market closures."

He's talking about a company, of course. But could you and your household "sleep well" when (not if) the next economic recession arrives? Can you ride out the spell of unemployment without severe financial stress?

Second, most individual investors should invest their long-term savings in broad-based very low-fee index funds. Key to good long-term performance is to keep fees low. The fees charged on broad-based mutual fund index funds are razor thin compared to their actively managed competitors. "Performance comes, performance goes," writes Buffett. "Fees never falter."

He illustrates his perspective by recounting a famous bet he made. He wagered $500,000 that over a 10-year period the Vanguard S&P 500 equity index would outperform an actively managed high fee hedge fund type investment fund. Performance would be measured net of fees, costs and expenses. The asset manager Protégé Partners took up the challenge and picked five funds-of-funds (with more than 200 hedge funds). The S&P 500 with its average annual gain of 8.5 percent easily outperformed the high-fee professionally managed funds.

Last, keep your investment strategy simple. "Stick with big, 'easy' decisions and eschew activity," he writes. The big decision for those putting money into retirement is asset allocation — how much you put into stocks, bonds, cash and so on. There's nothing easy about the decision, but it's the main determinant of your portfolio's long-term performance. Focus on asset allocation and forget trying to time the market.

Chris Farrell is senior economics contributor, "Marketplace," commentator, Minnesota Public Radio.