Do you want to surpass nearly 92% of professional fund managers? Buy this 1 investment and keep it forever.
Professional fund managers have obtained a lot of money and invested hundreds of millions of dollars in investors. On the surface, there is good reason to trust these professionals with all their money: they have been highly educated over the years and have developed important expertise. This should give them an important advantage in generating huge returns.
But the truth is that most professional fund managers can’t make enough investors to make up for the high fees they charge. In the long run, you don’t need any advanced education or special insights on the market to exceed 92% of professional fund managers.
All you need to do is buy S&P 500 Index funds, e.g. Vanguard S&P 500 ETF (nysemkt: voo)And keep it forever.
S&P Global Its SPIVA (S&P Index vs. Active) scorecard is published twice a year, detailing how many actively managed mutual funds are better than their respective S&P benchmarks. It can correct factors such as survival bias, which can make positive funds perform better. As a result, over the past 20 years, it has found that more than 8% of active large U.S. equity funds outperform the S&P 500.
Even for these experienced professionals, there are many reasons why it is really difficult to beat the market.
First, consider that the stock market, especially large stocks, is dominated by institutional investors like those who manage active mutual funds. About 80% of the number of large stocks comes from institutional investors. This means that the price of highly traded stocks is largely determined by these professionals.
In other words, active fund managers are opposing other active fund managers to find value and go beyond the broader market. As a result, they may evaporate rapidly any advantage, and the probability is better than the probability of 50/50.
Active managers also suffered from the author and partner research director Michael Mauboussin, author and head of partner research at Counterpoint Global in New York, called the Skill Paradox. When the skills throughout the field are very high and consistent, luck plays a greater role in determining which manager outperforms performance. Imagine two equally matched professional tennis players trying to win points. A weird bounce on the court or a slight breeze may ultimately determine the winner.
But an active manager not only has to be lucky enough to outperform the market, but also has to justify his fees in a sufficient way.
In his 1997 speech, Vanguard founder Jack Bogle proposed a very simple theory: “Investors are a market because they are a market, because they are a market,” he said. In fact, he took a step by saying investors as a group Poor performance The market is “due to participation costs.” These fees include transaction costs, administrative expenses, and the expense ratio of your mutual fund.
