Even America's Wealthiest Can't Consistently Beat the S&P 500
Analysis shows the 400 richest Americans would have fared better in an S&P 500 index fund over the past year than with their actual investments.
The 400 wealthiest Americans, as a group, would have generated stronger returns over the past 12 months had they simply parked their entire net worths in a passive S&P 500 index fund, according to an analysis highlighted by MarketWatch.
The finding adds empirical weight to a long-standing argument among financial economists: that active wealth management, even when backed by vast resources, elite advisers, and privileged deal flow, does not reliably outperform a low-cost index strategy tracking the broad U.S. equity market.
Read more Canceled Student Loans Still Haunt 300,000 Credit Reports →
For ordinary investors, the implication is significant. If the ultra-wealthy — with access to private equity, hedge funds, real assets, and teams of professional money managers — cannot consistently outpace a simple index fund, the case for retail investors attempting to do the same through stock-picking or market timing is considerably weaker.
Passive investing via index funds has grown dramatically over the past two decades, driven in part by compounding evidence that most active managers underperform their benchmarks over long time horizons, particularly after fees. The S&P 500 has historically delivered average annual returns of roughly 10% before inflation, a benchmark that has proved difficult for even sophisticated investors to surpass on a sustained basis.
Continue reading at MarketWatch.com
