According to an interview with CNBC back in 2007, Warren Buffett stated that he won a $1 million bet with the Protege Partners that hedge funds would never outperform the S&P index fund and he won! Buffett’s choice of investment was the Vanguard 500 Index Fund Admiral Shares which ended up returning about 7.1% on one’s investment annually, while the rest of the hedge funds only returned about 2.2% of one’s investment on an annual basis.
The profits from this bet will all go to various charitable causes as was agreed in the original bet. These charities are all in the same field of providing disadvantaged girls in the Omaha area with after-school programs to attend both after school and throughout the summers, giving them a safe place to spend their time.
Buffett states that no investment out there is a surefire guarantee, yet index funds are one of his favorite “risks” to take, especially for those saving for retirement. Low-cost index funds will multiply over time if they are brought regularly throughout someone’s working years. These bonds are a great choice as they are affordable to almost anyone at their low cost and they are not all tied to the same source, so if one fund does badly, others can compensate for it. These funds also tend to have lower management fees, which, over the course of a career can make a big difference in how much someone is paying in fees and how much they are actually saving for retirement.
Finally, Buffett says that a lot of people will like index funds as they are simply able to be bought and left to gain value. This eliminates a lot of the trading and management of their portfolio that many people hate and claim is too time-consuming and confusing.