Part 5/13:
Buffett famously placed a bet in 2006 against a group of hedge funds, predicting the S&P 500 Vanguard Index fund — a low-cost, passive investment — would outperform the collective hedge funds over a decade. By the end of 2015, Buffett’s bet was dramatically in the lead, with the index fund generating about 66% cumulative returns compared to roughly 22% for the hedge funds.
This underscores Buffett’s central advice: many investors do best by investing in low-cost index funds and holding their positions without reacting to short-term market fluctuations. Vanguard’s S&P 500 fund is a prime example, charging fees as low as 0.05%, far lower than many actively managed funds which commonly charge around 1%.