Question of the Day: Over a recent 20 year period, what percent of pros investing in large companies "beat the market?"
Answer: 94% of investment pros underperformed (see below), so 6% outperformed.
- Why do you think investing professionals struggle to "beat the market?
- Why do you think investors continue to invest their money with professionals despite their record of not being able to "beat the market?"
- Your friend says "you are better off investing with professionals instead of buying a simple index fund (e.g., S&P 500) that matches the market return." Do you agree or disagree based on the data above?
Behind the numbers (SPIVA report, 2020):
A UNIQUE SCORECARD FOR THE ACTIVE VERSUS PASSIVE DEBATE There is nothing novel about the index versus active debate. It has been a contentious subject for decades, and there are a few strong believers on both sides, with the vast majority of market participants falling somewhere in between. Since its first publication in 2002, the SPIVA Scorecard has served as the de facto scorekeeper of the active versus passive debate. When headline numbers have deviated from their beliefs, we have heard passionate arguments from both camps.
About the Author
Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.
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