Less than 10% of active large-cap fund managers have outperformed the S&P 500 over the last 15 years. The biggest drag on investment returns is unavoidable, but you can minimize it if you're smart. Here's what to look for when choosing a simple investment that can beat the Wall Street pros.
Over time, the odds of you beating the market only diminish. To prove this, let's look at an example: We saw from the data above that an investor has about a 75% chance of underperforming the market in any given year which means you have a 25% chance of beating the market in any given year.
It is relatively common to beat the market for 1–3 years at a time. That can largely be explained by luck. But the data clearly shows that even professional fund managers are unable to beat the market consistently over a longer period of time, like 10–15 years.
Using the S&P 500 as an example, “only 27.1% of actively managed funds benchmarked to the S&P 500 beat it” according to The Wall Street Journal.
The 15% of US funds that beat the S&P 500 over the past decade. How did these 20 active funds succeed where so many others failed? The S&P 500's high returns have been immensely difficult to beat over the past decade – so much so that only 20 active funds outperformed the index.
But even the best financial advisors are at the whim of the market. Most professional investors who try to beat the market actually underperform it over a given time period. And those who do manage to outperform the market over one time period can rarely outperform it again over the subsequent time period.
sizable poron, approximately 90%, of stock market traders incur losses. decision-making, and raising overall trading success. high failure rates.
Consistently outperforming the market is no simple task, with investment-related costs being a primary obstacle. Even when investing in an S&P 500 index fund, which aims to replicate the performance of the S&P 500, the associated fees inevitably diminish the returns.
Plus, how one trader uses their $25,000 capital might differ greatly from someone else. However, it's generally accepted that a successful day trader can make between 1% to 2% of their account balance per day. In the case of a $25,000 account, this could translate to approximately $250 to $500 a day.
Commonly called the S&P 500, it's one of the most popular benchmarks of the overall U.S. stock market performance. Everybody tries to beat it, but few succeed.
A US based study found that 58% of shares failed to beat cash over their lifetime. 38% only just beat cash by a small amount. This leaves just 4% of shares that are responsible for the higher average returns you see shares generating over cash. The odds of knowing these ahead of time are not good.
The average yearly return of the S&P 500 is 10.569% over the last 100 years, as of the end of December 2024. This assumes dividends are reinvested. Dividends account for about 40% of the total gain over this period. Adjusted for inflation, the 100-year average stock market return (including dividends) is 7.405%.
The average individual investor underperforms a market index by 1.5% per year. Active traders underperform by 6.5% annually. Day traders with strong past performance go on to earn strong returns in the future. Though only about 1% of all day traders are able to predictably profit net of fees.
Warren Buffett
1314 Buffett's investing style of discipline, patience, and value has consistently outperformed the market for decades.
Warren Buffet, with a net worth of whopping $133 billion, is the most successful investor of all time. Warren Buffett, known as the Oracle of Omaha and arguably the most famous investor, learned from Benjamin Graham and also worked for him.
That means the fund manager has to outperform the market by the fee they charge clients just to break even. And that's a lot harder than simply beating the market by a few basis points. As a result, the percentage of actively-managed mutual funds that outperform the S&P 500 in any given year is only around 40%.
The average investor may not have a very good chance of beating the market. Regular investors may be able to achieve better risk-adjusted returns by focusing on losing less. Consider using low-cost platforms, creating a portfolio with a purpose, and beware of headline risk.
Based on total return, the average stock market return is about 13% over the past 10 years. Since 1965, the S&P 500 has provided annualized total returns of 10.2% through 2023, according to data compiled by Berkshire Hathaway (BRKB).
Trading is often seen as a quick path to wealth, but the reality is stark—95% of traders end up losing money. This isn't due to bad luck; it's the result of poor preparation, emotional mistakes, and ignoring the principles of successful trading.
Assuming they make ten trades per day and taking into account the success/failure ratio, this hypothetical day trader can anticipate earning approximately $525 and only risking a loss of about $300 each day. This results in a sizeable net gain of $225 per day.
In addition, millionaires are much more likely to work with a financial advisor (69%), more than double the amount of the general population (33%).
Industry studies estimate that professional financial advice can add up to 5.1% to portfolio returns over the long term, depending on the time period and how returns are calculated. Good advisors will work with you to create a personalized investment plan and identify opportunities to help grow and protect your assets.
You're Confident Managing Your Own Investments
If you are comfortable selecting and managing your own investments, you may not need a financial advisor. Perhaps you follow the markets closely and do your own research on potential investments.