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This story is a vivid example of how investing in an index over many years has consistently outperformed many other approaches to savings management. Just take a look at these ironclad facts so you don't have to rely on speculation and conjecture when it comes to your savings.
Warren Buffett, one of the richest and most successful investors in the world, publicly announced in early 2007 that he was willing to bet $500,000 that “no professional would be able to assemble a portfolio that, over ten years, taking into account all commissions and fees, would outperform the simple S&P500 market index.” The best professionals in the financial world were offered a chance to prove that they could bring their investors more income than investing their savings in a simple market index.
Financial companies attracted thousands of investors and billions of dollars under their management, promising them high returns, but were in no hurry to take up the challenge and prove their skills in practice. The challenge was eventually taken up by the investment company Protégé Partners, which managed about 100 financial companies (hedge funds) focused on maximizing market returns for their investors. Of these companies, the 5 most promising were selected and participated in the bet.
No financial organization has been able to give its investors more returns than the market index. So Warren Buffet, who invested his money in a simple market index, won the bet by a large margin. Over the entire 10 years of the bet, the best management companies were able to outperform a simple market index only once. This happened in 2008, when the world was going through a financial crisis, and all markets fell. For the remaining nine years, the market index consistently provided higher returns for its investors each year. A simple conclusion can be drawn from this very instructive story. The best financial professionals in the world, despite their vast knowledge, have not been able to provide their investors with more than the market itself.
Why then do these companies attract investments for management, rather than simply placing their clients' savings in the market index? The answer is very simple. Over the past decades, a standard has emerged in this industry regarding the size of the management fee. This fee is 2% per year of the amount of funds entrusted to them for management, plus 20% of the profit, if there is any. It is known that investing in a market index does not require active management, therefore, charging such a high fee from an investor in this case is not justified. Thus, financial institutions that attract investors' funds with the promise of high returns under their management, in fact, act more in their own interests than in the interests of ordinary investors. This is exactly what Warren Buffet wanted to show by organizing this bet. It follows that one of the best tools in the financial world to increase your savings is a simple market index.
How does an index work in the cryptocurrency market?
In the world of cryptocurrencies, the market index works exactly the same way as in the classic financial market. It presents an overall picture and trends in market development, combining information about various cryptocurrencies. Instead of investing in individual cryptocurrencies, investing in an index allows you to diversify your risk and eliminates the need to constantly monitor each coin. This approach is especially valuable for the cryptocurrency market, where price fluctuations can be very significant.