January 4, 2018

As noted in TSP Investing Strategies, ten years ago Warren Buffett made a bet that a low-cost index fund resembling the S&P 500 would outperform any basket of hedge funds that might be chosen to compete against it.

As you know, the TSP’s C Fund closely matches the S&P 500 index.

Ten turbulent years later, the results are in: the S&P 500 (C Fund) won! The S&P 500 index fund returned 7.7% annualized over that time, compared to the miniscule 2.2% average return of a basket of hedge funds picked by an asset manager.

And this was just as a collapse in world markets was just getting started.

Ultimately, this means that if you too had invested in the C Fund, you would have outperformed the same basket of hedge funds, which also charge significantly more in management fees than the current 0.04% or so charged in the TSP.

Why pay more to get less in returns?

It is also another indication that it pays to invest passively in a portfolio of index funds over the long term, despite the ups and downs of the market.