In the investment management industry, professional fund managers certainly get idolized. Whether it’s their sharp suits, clear commentary, or huge paychecks, it’s not surprising if regular investors want to emulate their strategies. After all, we’re all after big returns.
But retail investors don’t need to do this. Here’s one ridiculously easy way you can beat the stock market experts.
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The data points to a surprising realization
Mutual fund and hedge fund managers, even those who adopt a long-term strategy, are sometimes known to charge exorbitant fees. This is particularly true of the latter group of professionals, which often charge management fees based on a percentage of assets under management, as well as a performance fee based on returns that are achieved. Investors in these products aim to achieve strong returns.
However, they might not fully realize how much of their hard-earned savings actually goes toward fees. This strategy makes sense if performance is stellar. That’s not exactly the case, however. There’s data out there showing that the vast majority of active fund managers lose to the S&P 500 over the long term. This might come as a revelation to some.
In the past decade, the S&P 500 index put up an annualized total return of 282% (as of March 25). Despite their pedigrees, fancy offices, and high-powered research and analytical capabilities, most fund managers weren’t able to beat that benchmark.
Vanguard S&P 500 ETF
Today’s Change
(-1.70%) $-10.09
Current Price
$582.96
Key Data Points
Day’s Range
$582.03 – $590.83
52wk Range
$442.80 – $641.81
Volume
12M
This ETF now looks like a no-brainer
Past returns are no guarantee of future results. And maybe over the next decade, the expert fund managers will outperform the index. No one knows. Nonetheless, the long-term data is compelling.
It now looks like buying an S&P 500 exchange-traded fund (ETF) is the best course of action if you want to beat the pros. It’s time to consider the Vanguard S&P 500 ETF (VOO 1.70%), which charges an extremely low expense ratio of 0.03%.
Investors who add this ETF to their portfolios are gaining exposure, via a single product, to 500 large and profitable businesses based in the U.S. It’s a totally passive strategy. There’s no need to spend hours studying and following individual companies. The simplicity of this approach is hard to overlook.
All sectors of the stock market are included. However, the information technology sector, unsurprisingly, has a huge weighting, representing 32.4% of the overall portfolio. Investors who buy the Vanguard S&P 500 ETF are essentially being bullish on the continued success of these sorts of businesses. That has clearly worked out well in the past.
If your goal is to outperform the stock market experts, this ETF is worthy of consideration.