Every few years, someone tells you about a stock tip. Or a fund that’s “crushing the market”. Or a strategy that “the pros use”.
Here’s the number that ends the conversation.
Over 20 years, 98.5% of actively managed funds underperform the S&P 500 index. That’s not a newsletter stat. That’s from S&P Global’s SPIVA report, published annually since 2002.
98.5%. These are professional full-time fund managers with Bloomberg terminals, research teams, and direct access to company executives. They lose to a fund that just buys the 500 biggest US companies and holds them forever.
The math isn’t complicated. Active funds charge 1% to 2% in fees. Index funds charge 0.03% to 0.1%. That gap, compounded over decades, is larger than the edge any manager can generate through skill.
If the professionals lose 98.5% of the time, the idea that you or I will pick winners is wishful thinking. Not impossible. Just statistically indistinguishable from luck.
Rule
You don’t need to beat the market. You need to be in it. Index funds are not boring. They’re the statistically correct answer.
Action for this week
If you’re investing in individual stocks or active funds, look up your returns over the last 5 years. Compare to the S&P 500 index over the same period. The comparison is usually humbling.
Next week
The mortgage offset trick that pays off your loan faster.
Know someone convinced they can beat the market? Forward this.
P.S. Warren Buffett has said publicly for 30 years that a low-cost S&P 500 index fund is the best investment for 99% of people. He runs Berkshire Hathaway. He knows what he’s saying.
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Decide Your Money
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Decide Your Money Educational content only. Not financial advice. Decide Your Money is not a licensed financial adviser. Speak with a qualified professional before making financial decisions.