Unlock the Secret to Outperforming Wall Street’s Brightest Minds
When it comes to investing, professional fund managers are often considered the crème de la crème of Wall Street. With their impressive educational backgrounds and extensive experience in the financial markets, they’re entrusted with billions of dollars in capital. However, there’s a surprising truth: you can outperform these pros using a straightforward investment strategy that nearly every professional can’t match.
The Power of Index Funds
Over the past 20 years, this strategy would have allowed you to outperform almost 92% of all domestic large-cap mutual funds. The odds are high that it’ll continue to outperform nearly every actively managed fund on Wall Street over the next 20 years. So, what’s the secret? Simply invest in an S&P 500 index fund, such as the Vanguard S&P 500 ETF (NYSEMKT: VOO).
The SPIVA Scorecard: A Reality Check for Actively Managed Funds
S&P Global’s SPIVA Scorecard, published twice a year, compares the performance of actively managed mutual funds to their relevant S&P benchmark indexes. The results are telling: just 8.2% of large-cap domestic mutual funds outperformed the S&P 500 over the past 20 years. The odds improve over shorter time horizons, but the index still holds a clear advantage.
Why Actively Managed Funds Struggle
There are several reasons why actively managed mutual funds often underperform. Firstly, the mechanics of the stock market dictate that for every buyer, there must be a seller, and vice versa. This means that professional fund managers are often trading with each other, making it difficult for any one fund to consistently outperform. Secondly, fees eat into every fund’s returns, significantly reducing the odds of outperformance. Finally, a fund’s success can actually make it more difficult to continue having success, as it attracts more capital and must extend its investments to less desirable securities.
The Advantages of Index Funds
An investment strategy that aims to match the returns of the overall market is a surprisingly strong performer relative to most actively managed mutual funds. By investing in an index fund like the Vanguard S&P 500 ETF, you can avoid the pitfalls that lead actively managed funds to underperform over the long run. With fees as low as 0.03% of assets under management, this ETF produces returns that more or less match the S&P 500, but with much lower costs.
A Low-Cost, Low-Risk Option
The Vanguard S&P 500 ETF stands out for its low fees and low tracking error, making it an attractive option for investors who want to buy shares on a regular schedule over time. While it may not be as exciting as investing with a hot new Wall Street fund manager, the expected performance over the long run is much better.
Consider Your Options
Before investing in the Vanguard S&P 500 ETF, consider exploring other low-cost S&P 500 index funds. And if you’re looking for more guidance on building a portfolio, regular updates from analysts, and new stock picks each month, consider investing with a trusted service like Stock Advisor.
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