Participate in market gains, but not the losses;
Guaranteed income for life;
Tax-deferred growth;
Ensure you do not outlive your money and more…
We help customize a plan most suitable for you and your family.
Speak with your state licensed agent directly for personal service and pre-qualification with top rated carriers throughout the United States.
Not suitable for everyone; not everyone can qualify…DO YOU QUALIFY? Call 866-FFL-SOUL (866-335-7685)
The Power of Indexing Illustrated by Warren Buffet’s Famous Bet
In 2007, Warren Buffet bet half of a million dollars (to be paid to a charity of his choice) that a simple S&P 500 index fund would outperform the the market as a whole to anyone who would bet him. Ted Seides of Protege Partners accepted the challenge and the clock started ticking on January 1, 2008.
Warren Buffet required that his opposing party must select at least five hedge funds to represent the active management side of the bet. The returns of the firms would be averaged to determine the “aggregate” active management performance. Instead, Protege Partners chose five fund-of-funds (funds that invest in a variety of hedge funds.) Accordingly, the active management side of the bet represented the performance of over one hundred different hedge funds which could continually rebalance portfolios.
During the first year of the bet, the five fund-of-funds outpaced the S&P 500. In stark contrast, in every subsequent year of the nine years, the fund-of-funds underperformed the index. (See table below.)
|
Results of “The Bet” |
||||||
|---|---|---|---|---|---|---|
|
Year |
Fund-of-Funds A |
Fund-of-Funds B |
Fund-of-Funds C |
Fund-of-Funds D |
Fund-of-Funds E |
S&P 500 Index Fund |
|
Final Gain |
21.7% |
42.3% |
87.7% |
2.8% |
27.0% |
125.8% |
|
Average Annual Gain |
2.0% |
3.6% |
6.5% |
0.3% |
2.4% |
8.5% |
|
Data from Berkshire Hathaway’s 2017 Annual Letter to Shareholders |
||||||
The results is clear regarding the hedge funds’ subpar returns; however, the table does not show the voluminous fees the investors paid.
Thus, Warren Buffet’s bet illustrates the power of indexing and an S&P index fund without spending time studying, researching, reading and learning opinions of stock market analysts.