I’m taking on Warrant Buffett’s million dollar bet. He beat the geniuses on Wall Street last time, but I feel good about my chances this time around. What’s this bet about? Read on…
Warren Buffett’s bet
In 2007, Warren Buffett made a million-dollar bet that a low cost stock index fund would outperform a collection of hedge funds over a 10-year period. He officially won at the end of 2017.
Warren Buffett picked VFINX and it gained 123% in 10 years (before tax.) Ted Seides of Protégé Partners picked 5 hedge funds. They gained just 24% over the same period. Passive investment won that round by a mile. VFINX did great because we’ve been in one of the longest bull markets in history. Hedge funds usually work better with more volatility. However, they also charge high fees which eat into the gains. The standard hedge-fund fee structure is 2% of assets and 20% of the gains each year. Jeez, that’s highway robbery. No wonder the hedge funds lost so badly.
Coincidently, I also used VFINX in my previous post – What if you always maxed out your 401k? If you maxed out your 401(k) over the last 10 years, you would have about $350,000 in your retirement account today. Your 401(k) is an amazing tool. You need to read that post if you aren’t maxing out your 401(k) contributions.
How I will beat Warren Buffett
By now, you’re wondering how I’m going to beat Warren Buffett’s pick. It isn’t easy to beat the market consistently. The geniuses on Wall Street can’t even do it. Who does Joe think he is? Well, here is my pick – the RB40 fund. I’m going to pit our net worth against VFINX.
Hey, that’s cheating! I disagree. The RB40 fund is just like