Know Your Odds

When it comes to investing in the stock market, there’s a “Gold Standard” that everyone in the financial world agrees is the standard to beat. It’s the S&P 500 index. When people refer to “the market,” that is what they’re referencing.

We hear all that time that financial advisors and mutual fund managers tell clients and their prospective clients, “You pay me/us to beat the market.” 𝐓𝐡𝐞 𝐭𝐫𝐮𝐭𝐡 𝐢𝐬, 𝐨𝐧𝐥𝐲 𝟒% 𝐨𝐟 𝐦𝐮𝐭𝐮𝐚𝐥 𝐟𝐮𝐧𝐝 𝐦𝐚𝐧𝐚𝐠𝐞𝐫𝐬 𝐛𝐞𝐚𝐭 𝐭𝐡𝐞 𝐒&𝐏 𝐨𝐯𝐞𝐫 𝐚 𝟏𝟓+ 𝐲𝐞𝐚𝐫 𝐩𝐞𝐫𝐢𝐨𝐝.

That means, 𝐢𝐧𝐯𝐞𝐬𝐭𝐢𝐧𝐠 𝐝𝐢𝐫𝐞𝐜𝐭𝐥𝐲 𝐢𝐧𝐭𝐨 𝐭𝐡𝐞 𝐒&𝐏 𝟓𝟎𝟎 𝐢𝐧𝐝𝐞𝐱 𝐨𝐯𝐞𝐫 𝟏𝟓 𝐲𝐞𝐚𝐫𝐬 𝐨𝐫 𝐥𝐨𝐧𝐠𝐞𝐫 𝐠𝐢𝐯𝐞𝐬 𝐲𝐨𝐮 𝐚 𝟗𝟔% 𝐜𝐡𝐚𝐧𝐜𝐞 𝐨𝐟 𝐛𝐞𝐚𝐭𝐢𝐧𝐠 𝐧𝐞𝐚𝐫𝐥𝐲 𝐞𝐯𝐞𝐫𝐲 𝐦𝐮𝐭𝐮𝐚𝐥 𝐟𝐮𝐧𝐝 𝐢𝐧 𝐞𝐱𝐢𝐬𝐭𝐞𝐧𝐜𝐞. Those are pretty good odds.

You can also look at it inversely. You have only a 4% chance of picking a mutual fund, or hiring someone to pick one, that’ll beat the S&P 500.

Here’s the thing though, almost all investing has risks (and mutual funds and financial advisors charge fees, which will compound the margin between your gains and the S&P 500’s even more).
Of all the risks that come with investing in the stock market, the risk of market loss is the greatest. Losing money to fees is a pretty close second. 𝐁𝐮𝐭 𝐰𝐡𝐚𝐭 𝐢𝐟 𝐲𝐨𝐮 𝐰𝐞𝐫𝐞 𝐚𝐛𝐥𝐞 𝐭𝐨 𝐞𝐥𝐢𝐦𝐢𝐧𝐚𝐭𝐞 𝐛𝐨𝐭𝐡 𝐟𝐞𝐞𝐬 𝐀𝐍𝐃 𝐭𝐡𝐞 𝐫𝐢𝐬𝐤 𝐨𝐟 𝐦𝐚𝐫𝐤𝐞𝐭 𝐥𝐨𝐬𝐬?

The truth is, you can. One of our financial professionals recently had a client consult where we looked at a client’s returns from April to April and compared them to the “Gold Standard” (the S&P 500). The margin between our client's account results and the S&P 500 index was 0.2%! That’s pretty close to the “Gold Standard” and our client didn’t even have to risk her money to market loss or fees.
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There are strategies out there that your financial advisor won't tell you about either because they aren't licensed to offer them to you or if they are they won't make a lot of money off of your account. Knowledge is power. Take the time to increase your financial education.