In 2008, Warren Buffett bet that an S&P 500 index fund will outperform a group of hedge funds over 10 years, to demonstrate his point that retail investors should use low cost index funds rather than pay high fees to hedge fund managers. Fortune magazine reported recently that Buffett pulled ahead in 2012 after s strong year for equities.
Buffett made the wager with the money managers who own Protege Partners LLC, with both sides putting up about $320,000 to invest in their respective markets. Buffett has guaranteed that the winner of the bet will be able to donate at least $1 million to the charity of their choice at the end of the bet, but if the wagers are worth more, then more will be donated.
Buffett’s index fund now posts a total gain of 8.7%, while the hedge funds are up only 0.1% after five years.