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- According to a 2020 report, over a 15-year period, nearly 90% of actively managed investment funds failed to beat the market.
- Portfolio managers are often Ivy League-educated investors who spend their entire workday attempting to outperform the stock market.
- If investment professionals can’t consistently beat the market, it’s unlikely that the typical at-home investor would achieve better results.
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In the investment community, it’s common knowledge that actively managed investment funds typically underperform compared to popular market benchmarks like the S&P 500. Investment professionals who spend their full-time job trying to beat the market usually can’t. So why do individual investors think they can when doing it part-time?
Many investors, myself included, have a portfolio of single stocks in an attempt to beat the markets. If you are doing it with “fun money” that you can afford to lose, that’s OK. But it’s not a good plan for most assets and investment goals. After all, if full-time investment professionals can’t be the market, it’s unlikely us part-timers will consistently outperform.
Most actively managed funds underperform compared to the market as a whole
Across all domestic actively managed equity funds, 88.4% underperformed their respective benchmark over the last 15 years, according to an analysis of the S&P SPIVA report.
While that number may be shocking, it’s not a surprise to those who follow the performance of actively managed funds against the markets. More than 80% of large-cap funds underperformed the S&P 500 over the last five years. In 2019, 79.98% of large-cap funds underperformed compared to the S&P 500, which was just a hair better than the five-year average. This long-running trend is a major factor in a shift in investor preferences to index funds, which mimic the market benchmarks.
Just last year, passive funds reached a higher asset total than active funds. This is evidence that most people understand that passive funds are the right place for the bulk of their assets. But that doesn’t seem to be stopping millions of investors from taking on risky positions in an attempt to outperform the markets.
Risky and poorly timed investments can wipe out years of gains
Timing the markets is tempting when you see a regular see-saw in stock prices, but it’s been proven over and over that most people will fail when trying to time the markets.
Changing your holdings when you think the market is going down or up typically doesn’t work. If it did, the professionals, and everyone else, would be beating the markets more often.
My investment strategy
Not realizing what was…
Go to the news source: Investment pros can’t beat the stock market, and it’s not worth trying