In 2007, legendary investor Warren Buffett made a $1 million bet against Protégé Partners that hedge funds wouldn't outperform an S&P index fund, and he won. Buffett's choice fund, the Vanguard 500 Index Fund Admiral Shares, returned 7.1 percent compounded annually, while the basket of hedge funds his competitor chose returned an average of only 2.2 percent, the Wall Street Journal reports. Buffett and Protégé Partners originally put about $320,000 each into bonds that would appreciate to $1 million over the course of their wager, but because the bonds appreciated much faster than expected, they decided to buy 11,200 Berkshire B shares, which are now worth $2.22 million, according to the Journal.

And, as decided in the original bet, the money will go to charity. Buffett's pick: Girls Inc., a organization that supports young girls in Omaha through after-school and summer programs. Although there are no guarantees in the stock market, Buffett's conviction that index funds are a smart investment is solid advice that almost anyone can follow. Index funds are a form of passive investing. They hold every stock in an index such as the S&P 500, including big-name companies such as Apple, Microsoft and Google, and offer low turnover rates, so fees and taxes tend to be low as well. Buffett specifically recommends them as a way to boost retirement savings. "Consistently buy an S&P 500 low-cost index fund," he told CNBC's On The Money. "I think it's the thing that makes the most sense practically all of the time."

Warren Buffett, Chairman and CEO of Berkshire Hathaway. Adam Jeffery | CNBC