Warren Buffett didn’t make a fortune by accident and recently showed the world why he’s one of the richest people on the planet.
The famous investor made a bet in 2007 and has just cashed-in on his winnings.
Buffett placed the bet for $1 million, stating that the S&P 500 would outperform a select group of hedge funds — picked by Protégé Partners — over the subsequent decade.
With 2017 in the rearview mirror, Buffett won that bet handily.
The average return of the hedge funds was 2.2%. They were boat-raced by the 7.1% return of the S&P 500 over the same period.
The terms of the bet were to each put $320,000 into bonds that were predicted to appreciate into $1 million over the following decade.
After they appreciated far faster than expected, the group decided to buy Berkshire B shares with the extra profit.
Now, Buffett was able to walk away with a cool $2.2 million in winnings. The rich get richer — but not so fast.
Both parties also agreed that they’d donate their winnings to charity (since $2.2 million is pocket change to someone like Warren Buffett). Buffett picked Girls Inc of Omaha.
Girls Inc. is a non-profit with the tagline, “Inspiring all girls to be strong, smart, and bold.” Roberta Wilheim, executive director of the organization, is incredibly thankful for the generous donation.
“An investment in the girls’ potential always pays off over time and, like Warren, we’re in it for the long haul,” Wilheim said. “We’ll put the money to work helping girls grow up to become confident, self-sufficient women.”
Girls Inc. plans to use the donation to fund transitional housing for 16 of their young women who are about to age out of foster care.
It’s clear that the result of this lighthearted bet will be put to good use.
As far as investment strategies, Buffett proved that index funds like the S&P 500 can be far more lucrative than hedge funds.
These represent a passive form of investing, and Buffett recommends them to those who are looking for a way to save for retirement.
“Consistently buy an S&P 500 low-cost index fund,” Buffett told CNBC. “I think it’s the thing that makes the most sense practically all of the time.”
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