Beating S&P good enough?

[gekkoplus]

i read somewhere that 80% mutual funds end up below S&P. Is S&P good enough to be a baseline considering that you can do nothing but invest in a index fund that tracks S&P to be able to beat 80% funds?

[disneysteve]

Index funds will never underperform the market. Of course, they will never outperform the market either. As you point out, most actively managed funds will underperform the market. That's why so many advisers suggest sticking with index funds. You are all but guaranteed that your investment will match market performance and you'll pay much lower expenses than with an actively managed fund.

[am_vanquish]

There are a TON of index funds out there with virtually unlimited variations of following a virtually unlimited number of indices. In my experience, a portfolio that follows market indices as well as small-cap / value indices is best in the long run.

As long as you're not scared of a LITTLE bit of technical talk, check out the link below. It is several pages, but a very informative and well-written source of information on index funds. I used this to come up with my current strategy (see the section on "tiltling"). Best of luck

Index Funds and Indexes, Explained

[devatha]

You can buy spdr(pronounced as spider - S&P Depository Receipts). You can buy any other index fund. But, ensure that it has low expenses and minimal tracking error. It is important to educate your self as much as possible. Because investing and managing money should be our second profession.
Moreover, don't go on buying the index funds every month. Please ensure that you buy an index fund , when the p/e ratio of the index(average p/e ratio of all the stocks in the index) is below 16 or 13(some say below 8, but it is ok if you buy below 13. because it may be very rate to find index p/e below 8 i think). Find a web site which can give you the p/e ratios of all index funds you buy. Because markets behaviour is unpredictable. index/market can be up/down/flat for many years (10or 20 or 30 years) also. Buy and hold for investing for long term is not a good idea in my view. Make a goal/note of your expected returns(e.g.,20% or 30% returns on my invested amount). When index goes up by your expected %, then sell. Buy when the index p/e is below 16 or 13. repeat this process, as many times as possible. As am_vanquish told, you can buy mid/small cap indices, but note that they are more volatile/risky(that means more returns also) than s&p 500. You can even beat the index several ways(somewhat more safer than actively managed funds) but all these methods are time consuming. One way to beat dzia(dow zones index) is dogs of the dow. But, you have to research about the causes of poor performance of each undervalued stock in the index. You can find more about investing in many places like internet sites and books. one such site is tweedy dot com -> research and reports -> papers and speeches -> 10 Ways To Beat An Index. The pdf can not be downloaded now for some reason. mail them, they may tell you when they can add the pdf to site. Note that these are all my views only. decision and responsibility for loss/profit is yours. i am not american citizen. I don't know about your market levels. I am an indian living in india. I just want to learn and share my knowledge with the other persons having the quality of boundless intellectual generosity. Moroever, don't believe what we(me included) say, seek the truth in it. this can only happen, if you start learning about these things. Then only you will have confidence. Whatever you do, identify the amount of money you want to invest/take risk. play by the rules of the game(don't be too greedy, dont be over confident, take your money out when you got your expected returns,etc)

[ea1776]

If you have no interest in the market at all and/or no time to dedicate to keeping up with the market and educating yourself about investing.... then yeah, I'd say so.

However, I believe motivated, patient, and well-educated individual investors can beat the market. People will counter that with "then why do 80% of professionals have trouble beating the market..."? Well, there are HUGE differences between an individual investor and someone running a multi-billion dollar fund. Here are a few that come to mind:

1. Mutual fund managers have to do what the fund's objective/strategy says to do in all markets, all the time. Since many objectives are to be 95% invested in stocks all the time, they have to do that too. Individual investors can sell and buy back in the blink of an eye. They can be 100% invested in stocks during a bull market, then sit and wait for an uptrend before going back in after a bear market. Many mutual funds have to diversify. Individuals can hop in and out of whatever hot sectors are going on.

2. Mutual fund managers have to worry about trading volume. Most individual investors don't unless they are working with millions. Mutual fund managers avoid thinly traded stocks b/c they are working with a huge number of shares.

3. Mutual fund managers have to worry about market cap. Individual investors don't. We individuals can buy a 500million-cap stock that is capable of growing rapidly. Many large whale mutual funds have to stick with DOW companies or other large cap, dividend-paying giants, simply b/c they could buy the whole company outright, and it not even account for 1% of the fund's assets.


It should also be noted that many many mutual funds should not be benchmarked against the S&P. It's unfair to compare many mutual funds to the S&P500. Many mutual funds are tracking a sector, or another country, or something else. You'd have to compare them to their relevant benchmark for it to be fair.

In summary, I believe folks who enjoy studying the market are more than capable of managing their own money and beating whatever relevant index. Nobody cares more about your future/money than you do. Also, when you keep up with investing, you are up to date with current events/politics/technology/etc, since all those things are so important to good investing. Just my $0.02