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How Many Investors Actually Beat the Market?

Before you entrust your funds to professional investors, you need to think about this.

Investor tries to beat the market

In today’s fast-paced world, it’s super convenient to have someone else manage your investments. Rather than spending heaps of time managing your portfolio, you can simply leave all the nitty-gritty to an investment professional. Allow them to work their magic, and voila, you have great returns.

If only it were that simple!

Before you get too comfortable with investment professionals, here’s a question to ponder: How many of them actually outperform the industry benchmarks?

In the topsy-turvy world of investing, benchmarks such as the S&P 500 allow investors to gauge their level of success. If your investment professional can get your funds to return above the benchmark, they are said to “beat the market.”

So, how many investors in the United States consistently succeed at this? Quick answer: not a whole lot.

In fact, underperformance can be seen across the board. According to a report by S&P Dow Jones Indices, fewer than 6% of professionals investing in large companies from 2002 to 2021 bested the S&P 500. In the same time frame, fewer than 9% of medium-sized company investors beat the market, while the number is less than 7% for investors in small companies.

For professional investors, 2021 was a BAD year

The year 2021 saw some particularly horrendous performances from U.S. equity funds, which speaks to the underwhelming performance of their managers. Try this on for size: In 2021, 98.6% of all large-cap growth funds fell short of the S&P 500 Growth index. This happens to be the worst performing equity fund in 21 years!

In 2021, market watchers had to stomach some more atrocious data:92.9% of multi-cap growth funds underperformed, along with 87.24% of small-cap growth funds and 83.21% of mid-cap growth funds. Among all equity funds, only a handful came even close to delivering a decent performance. Impressively, more than 61% of all large-cap value funds outstripped the S&P 500 Value index.

So, is handing your portfolio to fund managers worth it?

The lackluster performance of investing professionals (whether in 2021 or the past two decades) is undeniable. The question is, why do many market participants continue to trust them with the management of their investments?

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Obviously, the convenience of this set-up continues to be a strong motivator. 

By handing over the reins to a professional—who, by the way, is held accountable by public records of their past performance—market participants free up their time to pursue other income-generating activities.

Here’s something else that’s convenient: the accessibility of funds handled by investing professionals. Say what you will about professionally run equity funds, but there’s no denying the fact that they’re a pretty easy way for the general public to get into investing.

At the end of the day, investments handled by professionals remain popular because they put little to no strain on your personal schedule. Plus, they happen to be within arm’s reach. A word of advice, though: Given the numbers over the past two decades, you’ll have to temper your expectations.

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