What to choose between a manager or a tracker?

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The question is constantly asked on specialized networks or sites to be financed by new savers who want to optimize their cash flow: should you trust the managers, who thanks to their management allow you to earn more money? Or to these new software often indexed (based on) an index? Indeed, the question often arises, thanks in particular to our advanced technology and especially in view of the margins taken by our managers.

This question is answered in the news and in a rather radical way.

At the beginning of the month, it had been 10 years since the “Oracle of Omaha”, Mr Warren Buffet, made a bet with Protege Partners LLC on this subject. He anticipated that investors should be better protected by a tracker indexed on an index in order to optimise their profits, while retaining the advantage of not being bludgeoned by the managers’ huge commissions. However, the bet was risky given the performance of Protege Partners LLC over the past ten years. Indeed, thanks to its Vanguard index fund S&P 500, the company is expected to outperform several hedge fund groups over the 2007-2017 decade.

But a few days ago, the verdict came in and once again, the multi-billionaire Warren Buffet won his bet again. He notes in his monthly letter to the shareholders of his company Berkshire Hathaway that if you had bet on an index fund, you would have made a +85.4% capital gain within the decade. Whereas if you had trusted managers you would have made a capital gain in a spread of +2.9% to 62.8%. But it’s not over yet. He adds that in addition to this performance delta, you should have paid a much higher commission to your managers than if you had asked them to take an index fund from you.

That is why he explains that those who really win in management are not the small or medium investors, but rather those managers who take (up or down) commissions called management fees or account keeping.

So if you want a clear, straightforward and reliable answer. Trust the world’s third richest man in 2016: “investors, large and small, should stick to low-cost index funds.”

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