More on How to Beat the Market

Here we go again. The Standard & Poors, of the S&P500 index, also conducted its annual study of the Index vs Active Funds.  They too were trying to determine if Active funds were adding value to investors.  

The results: Over the last five years:

the S&P 500 has outperformed 60.8% of actively managed large-cap U.S. equity funds;

the S&P Mid Cap 400 has outperformed 77.2% of mid-cap funds; and

the S&P Small Cap 600 has outperformed 66.6% of small-cap funds

The five-year data results are similar for actively managed fixed income funds.

Across all categories, with the exception of emerging market debt, more than 70% of active managers have failed to beat benchmarks.

Short-term outcomes (such as periods of 12 months or less) of the index versus active debate are less consistent than longer-term outcomes. There are individual years that active outperforms (see the full report for details).

As we've discussed before, research shows that 94% of an investor’s return comes from their allocation (stocks / bonds). Managing your investments includes managing the Risks and the costs.

On top of that, the risk of under-performing is much greater than the reward one gets for exceeding the index return. There are funds out there that add value – the question to ask is can you identify them in advance? If you’re wrong, is it worth the risk? (ie. if you underperform dramatically, will you be able to recover).

Overall, there is really nothing new, just a reminder that low cost passive investing should have a place in everyone’s portfolio. This report supports our investment philosophy of maintaining a diversified portfolio, keep cost low and always invest for the long term.

Here’s a Link to the full report.