You Can’t Outsmart the Market

One of the things that frustrated me the most at my past corporate jobs was advisors who believed they could outsmart the market. That was the main value they brought to their clients. They manipulated data to make themselves look better. And it bothered the hell out of me. It felt sleazy, it felt scummy, and it felt just plain wrong on so many levels. Morals aside, there was a reason for those feelings. Trying to beat the market is like trying to beat an avalanche: some can do it, but can you do it over and over and over again? No. No, you can’t outsmart the market.

Take the chart at the top of this post. It shows the percentage of stock funds that manage to do better than the broader stock market in any given year. These funds are run by some very smart people who often have a lot of resources. Their entire job is to look at the stock market all day every day and pick winners. In 2020, 57% of funds failed at that objective. Only 43% of funds managed to do better.

And guess what else? This was the 11th straight year that the majority of funds lagged the market.

“But, Sarah,” you may be asking yourself, “what about those funds that did perform better? Surely, those ones are good?” Nope. They aren’t. Research done by S&P Dow Jones Indices found that only 4.8% of actively managed funds have managed to stay in the top half of their peer group since 2016. Four Point Eight Percent.

This might make you feel discouraged about investing, but that isn’t my point at all. My point is that you can’t outsmart the market. All the bells and whistles and clever people in the world cannot consistently beat the market. The best bet for your money is to keep it simple and keep a clear head about your expectations.

You can’t outrun an avalanche, so maybe you should just ride it. Let me coach you.

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Wisconsin CERTIFIED FINANCIAL PLANNER™ professional and educator Sarah Paulson


Meet Sarah Paulson, your

Although I’m a born-and-raised Wisconsinite – living in Appleton, Wisconsin –

I consider myself more of a world citizen.

True story: once when going through international customs in Amsterdam, the officers asked why they couldn’t find a Dutch residency permit in my American passport.

I bring a big world picture to my money management advice so you can view the wider world, too.

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