If you’re investing in mutual funds, you might be more likely to win your fantasy football league than beat the market.
Time is a flat circle.
It’s amazing how history seems to repeat itself, especially in the world of investing. Back in the day, our parents and grandparents used to spend hours poring over stock listings, trying to pick the next big winners and beat the market. They thought they were onto something, that they had that secret sauce. But you know what? More often than not, they ended up with a mixed bag of winners, losers, and a whole lot of stress.
Can you beat the benchmark?
Each year, some investors manage to do it, of course, but can they do it consistently? A study of actively managed mutual funds by S&P Dow Jones Indices asked that question and came up with a startling result. It found that not a single mutual fund — not one — managed to beat its benchmark in either the U.S. stock or bond markets regularly and convincingly over the last five years. It’s like trying to pick the one year out of 15 that Matt Ryan wins the MVP, in a world where Peyton Manning, Aaron Rodgers, Tom Brady, and Patrick Mahomes exist. Good luck.
Matt Ryan had 70/1 preseason odds to win the 2015 MVP.
Fast forward to today, and here we are, doing the same thing with mutual funds. We think we can pick the funds that will outperform the market consistently, just like the generation before us thought they could pick individual stocks. It’s a lot of the same old, same old, and the results aren’t all that different. Sure, you might get lucky here and there, but is it really worth the sleepless nights and the constant checking of your portfolio?
So, what’s the better way?
Well, it’s the same answer we’ve heard time and time again:
Index funds.
They’re like the golden ticket to Willy Wonka’s chocolate factory, except this time, there’s no room for debate. You’re not trying to outsmart the market; you’re just going along for the ride. It’s like saying, “I’m not going to compete with LeBron James; I’ll just wear his jersey and enjoy the game.”
In the end, we’ve learned that maybe, just maybe, our parents and grandparents had something right when they told us to keep it simple. Index funds are the no-nonsense, stress-free way to invest. So, let’s put our feet up, sip on a cold beverage, and watch our money grow without all the drama. It’s the investing equivalent of sitting courtside, and who wouldn’t want that?