Question of the Day: Over a recent 20 year period, what percent of professionals investing in large companies "beat the market?"
The answer may change the way you think about investing.
Answer: 94% of investment pros underperformed (see below), so only 6% "beat the market"
Note: The S&P 500 (the comparison index) consists of the largest publicly traded U.S. corporations, ranked based on their market capitalization. This NGPF Activity, What's the S&P 500?, using the FinViz visualization, helps students make sense of this index.
- 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” over the long term?
- Your friend says "you are better off investing with professionals instead of buying a simple index fund (e.g., S&P 500) that only matches the market return." Do you agree or disagree?
Click here for the ready-to-go slides for this Question of the Day that you can use with your students.
Behind the numbers (SPIVA report, 2021):
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.
Teach students about index funds with the most popular game in the NGPF Arcade, STAX.
Get your class predictions in for the NGPF "Guess the CPI Contest" prior to this Wednesday (May 11th) at 8:30am ET. Prizes available!
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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