Should financial advisor beat S&P?
Putting Your Money in the S&P 500 Will Make You More Money
Less than 10% of active large-cap fund managers have outperformed the S&P 500 over the last 15 years. The biggest drag on investment returns is unavoidable, but you can minimize it if you're smart. Here's what to look for when choosing a simple investment that can beat the Wall Street pros.
He or she will help you construct a portfolio that gives you a good chance of reaching those goals, based on the best research available. But even the best financial advisors are at the whim of the market. Most professional investors who try to beat the market actually underperform it over a given time period.
It's not easy to beat the S&P 500. In 2023, only 40% of actively managed large-cap mutual funds beat the market, and the last time a majority of funds beat the market was in 2009.
Investing in an S&P 500 fund can instantly diversify your portfolio and is generally considered less risky. S&P 500 index funds or ETFs will track the performance of the S&P 500, which means when the S&P 500 does well, your investment will, too. (The opposite is also true, of course.)
Berkshire Hathaway CEO Warren Buffett has regularly recommended an S&P 500 index fund. The S&P 500 has been a profitable investment over every rolling 20-year period in history.
Those who use financial advisors typically get higher returns and more integrated planning, including tax management, retirement planning and estate planning. Self-investors, on the other hand, save on advisor fees and get the self-satisfaction of learning about investing and making their own decisions.
If you're having trouble picking up the phone to ask a financial question, that's a bad sign. “If you're not calling because you don't think your concerns are important, or you feel like, 'they're too busy — I don't want to bother them,' those are big red flags,” Jennerjohn says.
- "I offer a guaranteed rate of return."
- "Performance is the only thing that matters."
- "This investment product is risk-free. ...
- "Don't worry about how you're invested. ...
- "I know my pay structure is confusing; just trust me that it's fair."
Source: 2021 Fidelity Investor Insights Study. Furthermore, industry studies estimate that professional financial advice can add between 1.5% and 4% to portfolio returns over the long term, depending on the time period and how returns are calculated.
Why you shouldn't just invest in the S&P 500?
The one time it's okay to choose a single investment
That's because your investment gives you access to the broad stock market. Meanwhile, if you only invest in S&P 500 ETFs, you won't beat the broad market. Rather, you can expect your portfolio's performance to be in line with that of the broad market.
Over the full period, just 2% of actively managed Large-Cap Core funds beat the S&P 500. Even in categories such as small- and mid-sized stocks, and growth — which benefited from the tailwinds of an outperforming universe — a minimum of 81% of actively managed funds underperformed the benchmark.
Potential drawbacks of investing in the S&P
The S&P 500 weighting system gives a small number of companies major influence, which could have an undue negative effect on the index if one or a few of them run into trouble.
According to our calculations, a $1000 investment made in February 2014 would be worth $5,971.20, or a gain of 497.12%, as of February 5, 2024, and this return excludes dividends but includes price increases. Compare this to the S&P 500's rally of 178.17% and gold's return of 55.50% over the same time frame.
In 1980, had you invested a mere $1,000 in what went on to become the top-performing stock of S&P 500, then you would be sitting on a cool $1.2 million today.
Assuming an average annual return rate of about 10% (a typical historical average), a $10,000 investment in the S&P 500 could potentially grow to approximately $25,937 over 10 years.
Berkshire's 18% year-to-date returns top the S&P 500's 7% gain, and the results grow more eye-popping as the time frame extends: Berkshire's 271% return over the last decade and 50,799% surge over the last 40 years smashes the S&P's 232% and 4,213% respective gains, according to FactSet data.
Its Relative Strength Rating of 84 means it has outperformed 84% of stocks in terms of price performance over the past 12 months. Berkshire Hathaway stock held strong in 2022, making a slight gain compared to a loss of more than 19% for the S&P 500.
Basic Info. S&P 500 10 Year Return is at 180.6%, compared to 174.1% last month and 161.9% last year. This is higher than the long term average of 114.4%.
Generally, having between $50,000 and $500,000 of liquid assets to invest can be a good point to start looking at hiring a financial advisor. Some advisors have minimum asset thresholds. This could be a relatively low figure, like $25,000, but it could $500,000, $1 million or even more.
Can you trust your financial advisor?
An advisor who believes in having a long-term relationship with you—and not merely a series of commission-generating transactions—can be considered trustworthy. Ask for referrals and then run a background check on the advisors that you narrow down such as from FINRA's free BrokerCheck service.
The average return is going to vary from year to year, based on the activity in the market. Studies have shown that financial advisors have the potential to add, on average, between 1.5% and 4% to your portfolio above what the average person is able to get as a return on their own.
Red Flag #1: They're not a fiduciary.
You be surprised to learn that not all financial advisors act in their clients' best interest. In fact, only financial advisors that hold themselves to a fiduciary standard of care must legally put your interests ahead of theirs.
The 80/20 rule retirement emphasizes the importance of focusing on actions that yield the most significant results. When planning for retirement, concentrate on the 20% of your efforts that will have the greatest impact on your financial future.
- They are a part-time fiduciary.
- They get money from multiple sources.
- They charge excessive fees.
- They claim exclusivity.
- They don't have a customized plan.
- You always have to call them.
- They ignore you or your spouse.
References
- https://www.schwab.com/learn/story/pattern-day-trading-rule-explained
- https://www.kotaksecurities.com/share-market/how-to-earn-1000-rs-per-day-in-the-share-market/
- https://www.schwab.com/learn/story/stock-settlement-why-you-need-to-understand-t2-timeline
- https://www.linkedin.com/pulse/hedge-funds-vs-sp-500-truth-investment-returns-amr-elharony-hmysf
- https://tradethatswing.com/the-1-risk-rule-for-day-trading-and-swing-trading/
- https://tradethatswing.com/the-day-trading-success-rate-the-real-answer-and-statistics/
- https://www.zippia.com/day-trader-jobs/demographics/
- https://www.forbes.com/sites/dereksaul/2024/02/26/berkshire-hathaway-stock-rises-to-record-high-heres-how-warren-buffetts-returns-compare-to-sp-500/
- https://s2analytics.com/blog/the-fifteen-minute-rule-lessons-in-technical-trading/
- https://www.investopedia.com/terms/d/daytrader.asp
- https://www.forbes.com/advisor/investing/index-funds-vs-mutual-funds/
- https://www.investopedia.com/terms/t/two-percent-rule.asp
- https://tiomarkets.com/article/does-day-trading-make-sense-can-you-succeed-as-a-day-trader
- https://www.franklintempleton.com/planning-and-learning/learn-about-investing/investing-principles/cost-of-timing-the-market
- https://stockstotrade.com/day-trading-rules-under-25k/
- https://www.nasdaq.com/articles/got-%24500-a-month-to-invest-heres-how-the-sp-500-could-make-you-a-millionaire
- https://money.usnews.com/investing/articles/things-your-financial-advisor-should-not-tell-you
- https://www.forbes.com/advisor/investing/what-is-day-trading/
- https://www.timothysykes.com/blog/how-to-day-trade-without-25k/
- https://scanz.com/become-a-better-trader/
- https://tradethatswing.com/best-stocks-for-day-trading-updated-weekly/
- https://centerpointsecurities.com/understanding-the-pattern-day-trading-rule/
- https://www.cnbc.com/2024/01/23/worlds-largest-hedge-funds-record-bumper-year-of-profits.html
- https://www.mypivots.com/dictionary/definition/25/80-rule
- https://finance.yahoo.com/news/forget-p-500-buy-incredible-113000964.html
- https://www.investopedia.com/articles/trading/05/011705.asp
- https://www.warriortrading.com/pattern-day-trader-rule/
- https://smartasset.com/financial-advisor/financial-advisor-vs-self-investing
- https://medium.com/@ehtisham678/can-day-trading-make-you-a-millionaire-heres-what-you-need-to-know-e45d898278aa
- https://gitnux.org/day-trading-statistics/
- https://finance.yahoo.com/news/ask-advisor-am-giving-away-195756248.html
- https://www.sarsillc.com/financial-advisor-red-flags/
- https://www.quora.com/Can-an-average-person-make-a-living-by-day-trading-stocks-and-not-holding-them-overnight
- https://pro.thestreet.com/trade-ideas/use-these-3-steps-to-be-a-successful-day-trader
- https://www.fool.com/investing/how-to-invest/stocks/day-trading/
- https://fundselectorasia.com/10-funds-that-beat-the-sp-500-by-over-20-in-2023/
- https://smartasset.com/financial-advisor/how-do-financial-advisors-make-money
- https://www.quora.com/Which-hedge-fund-has-consistently-had-the-highest-returns-over-a-long-period-of-time
- https://finance.yahoo.com/news/13-stocks-outperform-p-500-165621345.html
- https://www.dukascopy.com/swiss/english/marketwatch/articles/top-10-most-successful-forex-traders-in-the-world/
- https://robinhood.com/support/articles/pattern-day-trading/
- https://thebossmagazine.com/day-traders-fortune-foresight/
- https://www.thebalancemoney.com/how-to-day-trade-stocks-with-less-than-25-000-1031365
- https://www.investopedia.com/articles/trading/09/risk-management.asp
- https://www.investopedia.com/terms/w/win-loss-ratio.asp
- https://www.investopedia.com/day-trading/best-time-day-week-month-trade-stocks/
- https://www.investors.com/etfs-and-funds/mutual-funds/best-performing-mutual-funds-2024-beat-benchmarks/
- https://www.investopedia.com/ask/answers/12/beating-the-market.asp
- https://www.warriortrading.com/how-to-make-a-living-day-trading/
- https://www.quora.com/Only-5-of-day-traders-make-money-Why-is-this
- https://smartasset.com/financial-advisor/the-minimum-investment-for-a-financial-advisor
- https://www.modwm.com/can-i-beat-the-market/
- https://www.forbes.com/advisor/au/investing/what-is-day-trading/
- https://www.investors.com/research/berkshire-hathaway-stock-buy-now-warren-buffett-stock/
- https://www.ally.com/stories/invest/day-trading-rules-and-leverage/
- https://www.linkedin.com/pulse/how-day-trade-robinhood-without-25k-tebid-kelly
- https://www.fidelity.com/viewpoints/investing-ideas/financial-advisor-cost
- https://stockanalysis.com/article/can-you-beat-the-market/
- https://liquidity-provider.com/articles/is-day-trading-gambling-most-likely-yes/
- https://work.chron.com/average-return-day-trader-can-expect-29933.html
- https://tradingqna.com/t/how-tough-is-it-to-make-1000-rupees-per-day-from-the-stock-market/154737
- https://citywire.com/wealth-manager/news/wealth-portfolios-were-back-in-the-black-in-2023-but-how-real-was-it/a2433362
- https://www.investopedia.com/articles/trading/10/top-ten-rules-for-trading.asp
- https://www.mstock.com/articles/5-reasons-why-traders-lose-money-in-stock-market
- https://www.quora.com/What-percentage-of-traders-actually-succeed-as-full-time-traders
- https://www.investopedia.com/articles/trading/06/daytradingretail.asp
- https://www.warriortrading.com/how-much-money-do-you-need-to-day-trade/
- https://www.fool.com/investing/2024/02/22/1-warren-buffett-index-fund-can-turn-450-to-983800/
- https://www.fool.com/investing/general/2013/09/21/the-best-performing-stock-on-the-sp-500-since-1980.aspx
- https://bullishbears.com/how-much-do-day-traders-make/
- https://finance.yahoo.com/news/invested-1000-netflix-decade-ago-133004497.html
- https://www.nerdwallet.com/article/investing/change-financial-advisors
- https://tradewiththepros.com/what-should-you-not-do-in-day-trading/
- https://www.investopedia.com/articles/personal-finance/103013/how-do-i-know-i-can-trust-my-financial-advisor.asp
- https://www.navyfederal.org/makingcents/investing/risks-of-day-trading.html
- https://www.smallcase.com/learn/types-of-stock-market-trading/
- https://www.fool.com/the-ascent/buying-stocks/articles/heres-what-happens-when-you-only-invest-in-sp-500-etfs/
- https://www.fool.com/investing/2023/11/26/want-to-outperform-92-of-professional-fund-manager/
- https://www.linkedin.com/pulse/average-profit-factor-quantifiedstrategies-fkx3c
- https://www.fxstreet.com/education/golden-rules-of-trading-202312051327
- https://www.finra.org/investors/investing/investment-products/stocks/day-trading
- https://www.nerdwallet.com/article/investing/how-to-day-trade-safely
- https://www.ruleoneinvesting.com/blog/financial-control/why-you-dont-need-a-financial-advisor/
- https://www.morningstar.com/etfs/actively-managed-funds-measured-up-well-market-rebound
- https://finance.yahoo.com/news/beat-p-500-buy-etf-104500503.html
- https://finance.yahoo.com/news/more-money-investing-10-000-220010726.html
- https://www.investopedia.com/articles/03/121003.asp
- https://www.quantifiedstrategies.com/profitable-trading-strategies/
- https://trendspider.com/learning-center/the-rule-of-90/
- https://finance.yahoo.com/news/invested-1000-p-global-decade-133005715.html
- https://emini-watch.com/emini-trading/rules-of-thumb/
- https://www.titan.com/articles/is-sp-500-a-good-investment
- https://www.poems.com.sg/glossary/trading-terms/trade-sizing/
- https://www.evidenceinvestor.com/just-2-of-large-cap-core-funds-have-beaten-the-sp-500-since-1993/
- https://interactive-wealth.com/80-20-pareto-rule-for-retirement/
- https://pepperstone.com/en-af/market-analysis/trading-guides/one-percent-rule-in-day-trading/
- https://work.chron.com/average-income-day-trader-19638.html
- https://www.investopedia.com/articles/active-trading/053115/average-rate-return-day-traders.asp
- https://www.linkedin.com/pulse/what-type-trading-should-beginner-start-prince-john-paul-rpige
- https://www.fool.com/investing/2024/03/24/you-can-do-better-than-sp-500-buy-this-etf/
- https://www.datasciencesociety.net/what-proportion-of-day-traders-find-themselves-profitable/
- https://ycharts.com/indicators/sp_500_10_year_return
- https://www.investopedia.com/financial-edge/0312/how-to-become-a-day-trader.aspx
- https://www.nerdwallet.com/article/investing/how-to-invest-in-sp500
- https://www.bajajfinserv.in/how-to-calculate-stop-loss-in-intraday-trading
- https://money.usnews.com/financial-advisors/articles/signs-your-financial-advisor-is-terrible
- https://www.linkedin.com/pulse/why-do-most-retail-traders-90-lose-money-how-can-more
- https://tradeciety.com/24-statistics-why-most-traders-lose-money
- https://www.sec.gov/files/daytrading.pdf
- https://poe.com/poeknowledge/1512928000358234
- https://www.quora.com/What-is-the-percentage-of-hedge-fund-managers-who-outperform-the-market
- https://www.simplertrading.com/blog/getting-started/how-much-do-day-traders-make