{"id":7426,"date":"2024-09-18T22:02:48","date_gmt":"2024-09-18T13:02:48","guid":{"rendered":"https:\/\/kia-tips.com\/?p=7426"},"modified":"2024-09-18T22:18:32","modified_gmt":"2024-09-18T13:18:32","slug":"94-percent-of-fund-managers-underperform-sp500-reasons-index-investing-wins","status":"publish","type":"post","link":"https:\/\/kia-tips.com\/en\/investment\/94-percent-of-fund-managers-underperform-sp500-reasons-index-investing-wins\/","title":{"rendered":"[Shocking] 94% of Fund Managers Fail to Beat the S&#038;P 500! Why Index Investing is the Superior Choice"},"content":{"rendered":"<p>If you want to succeed in U.S. stock investing, an S&#038;P 500 index fund is your best bet.<\/p>\r\n\r\n<p>Surprisingly, 94% of American fund managers have underperformed the S&#038;P 500 over the long term.<\/p>\r\n\r\n<p>This is because, over time, low-cost index funds, which provide market-average returns, outperform high-cost active funds.<\/p>\r\n\r\n<p>We\u2019ll explain why the S&#038;P 500 continues to thrive and share key insights for individual investors to succeed. If you\u2019re a beginner investor, this is a must-read!<\/p>\r\n\r\n<div class=\"recommendations-simple\">\r\n  <div class=\"recommendations_title\">Summary of This Article<\/div>\r\n  <ul>\r\n    <li>94% of professionals can&#8217;t beat the S&#038;P 500 in the long run<\/li>\r\n    <li>Active funds are costly and tend to underperform the market average<\/li>\r\n    <li>The S&#038;P 500 grows thanks to inflows from 401(k)s and tax-advantaged accounts like IRAs<\/li>\r\n  <\/ul>\r\n<\/div>\r\n<div class=\"c_box pink_box type_normal\">\r\nThis article is a translation from Japanese, so please forgive any translation errors or culturally unfamiliar expressions. We hope it still provides valuable insights and helpful information. Thank you for your understanding!\r\n<\/div>\r\n\r\n<h2>Why 94% of Fund Managers Fail to Beat the S&#038;P 500<\/h2>\r\n<img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/kia-tips.com\/wp-content\/uploads\/2024\/09\/active_fund_management_concep.png\" alt=\"\" width=\"728\" height=\"410\" class=\"aligncenter size-full wp-image-6698\" srcset=\"https:\/\/kia-tips.com\/wp-content\/uploads\/2024\/09\/active_fund_management_concep.png 728w, https:\/\/kia-tips.com\/wp-content\/uploads\/2024\/09\/active_fund_management_concep-300x169.png 300w, https:\/\/kia-tips.com\/wp-content\/uploads\/2024\/09\/active_fund_management_concep-160x90.png 160w\" sizes=\"auto, (max-width: 728px) 100vw, 728px\" \/>\r\n\r\n<p>According to a 2021 study by Standard &#038; Poors, many U.S. fund managers have consistently failed to outperform benchmarks like the S&#038;P 500 over the long term.<\/p>\r\n<p>Below, we\u2019ll explain why this happens and why index funds, like those tracking the S&#038;P 500, have an advantage.<\/p>\r\n\r\n<h3>How Badly Do Active Funds Lag Behind the S&#038;P 500?<\/h3>\r\n\r\n<ul>\r\n  <li>In 2021, 85% of active funds underperformed the S&#038;P 500<\/li>\r\n  <li>Over the past 10 years, 83%, and over 20 years, 94% of funds have underperformed the S&#038;P 500<\/li>\r\n  <li>The same trend holds for small- and mid-cap stocks, with 92% underperforming the S&#038;P MidCap 400<\/li>\r\n<\/ul>\r\n\r\n<h4>Percentage of Active Funds That Failed to Beat S&#038;P Indexes<\/h4>\r\n<table border=\"1\" cellpadding=\"10\">\r\n  <thead>\r\n    <tr>\r\n      <th>Index<\/th>\r\n      <th>1 Year<\/th>\r\n      <th>3 Years<\/th>\r\n      <th>5 Years<\/th>\r\n      <th>10 Years<\/th>\r\n      <th>20 Years<\/th>\r\n    <\/tr>\r\n  <\/thead>\r\n  <tbody>\r\n    <tr>\r\n      <td><strong>Large-Cap (S&#038;P 500)<\/strong><\/td>\r\n      <td>85.1%<\/td>\r\n      <td>67.9%<\/td>\r\n      <td>74.1%<\/td>\r\n      <td>83.1%<\/td>\r\n      <td>94.1%<\/td>\r\n    <\/tr>\r\n    <tr>\r\n      <td><strong>Mid-Cap (S&#038;P 400)<\/strong><\/td>\r\n      <td>61.9%<\/td>\r\n      <td>52.9%<\/td>\r\n      <td>59.2%<\/td>\r\n      <td>72.5%<\/td>\r\n      <td>91.7%<\/td>\r\n    <\/tr>\r\n    <tr>\r\n      <td><strong>Small-Cap (S&#038;P 600)<\/strong><\/td>\r\n      <td>70.5%<\/td>\r\n      <td>51.5%<\/td>\r\n      <td>63.3%<\/td>\r\n      <td>79.2%<\/td>\r\n      <td>93.4%<\/td>\r\n    <\/tr>\r\n    <tr>\r\n      <td><strong>Total U.S. Stock Market (S&#038;P 1500)<\/strong><\/td>\r\n      <td>80.3%<\/td>\r\n      <td>71.1%<\/td>\r\n      <td>71.8%<\/td>\r\n      <td>87.3%<\/td>\r\n      <td>91.8%<\/td>\r\n    <\/tr>\r\n  <\/tbody>\r\n<\/table>\r\n\r\n<h4>Percentage of Active Funds That Failed to Beat Global Indexes<\/h4>\r\n<table border=\"1\" cellpadding=\"10\">\r\n  <thead>\r\n    <tr>\r\n      <th>Index<\/th>\r\n      <th>1 Year<\/th>\r\n      <th>3 Years<\/th>\r\n      <th>5 Years<\/th>\r\n      <th>10 Years<\/th>\r\n      <th>20 Years<\/th>\r\n    <\/tr>\r\n  <\/thead>\r\n  <tbody>\r\n    <tr>\r\n      <td><strong>Global (Including U.S.)<br>(S&#038;P Global 1200)<\/strong><\/td>\r\n      <td>84.1%<\/td>\r\n      <td>65.6%<\/td>\r\n      <td>69.2%<\/td>\r\n      <td>84.8%<\/td>\r\n      <td>85.3%<\/td>\r\n    <\/tr>\r\n    <tr>\r\n      <td><strong>Global (Excluding U.S.)<br>(S&#038;P 700)<\/strong><\/td>\r\n      <td>49.7%<\/td>\r\n      <td>60.2%<\/td>\r\n      <td>68.9%<\/td>\r\n      <td>78.1%<\/td>\r\n      <td>90.4%<\/td>\r\n    <\/tr>\r\n    <tr>\r\n      <td><strong>Global Small-Cap<br>(S&#038;P Developed Ex-US Small Cap)<\/strong><\/td>\r\n      <td>31.1%<\/td>\r\n      <td>55.4%<\/td>\r\n      <td>57.7%<\/td>\r\n      <td>60.4%<\/td>\r\n      <td>87.9%<\/td>\r\n    <\/tr>\r\n    <tr>\r\n      <td><strong>Emerging Markets<br>(S&#038;P\/IFCI Composite)<\/strong><\/td>\r\n      <td>64.6%<\/td>\r\n      <td>56.3%<\/td>\r\n      <td>74.7%<\/td>\r\n      <td>79.8%<\/td>\r\n      <td>93.4%<\/td>\r\n    <\/tr>\r\n  <\/tbody>\r\n<\/table>\r\n\r\n<p class=\"source\"><strong>Source:<\/strong> Standard &#038; Poors, Year-End 2021 SPIVA Scorecard<\/p>\r\n\r\n<h3>The Decline of Active Funds<\/h3>\r\n<p>Due to underperformance, many funds have been merged or liquidated.<\/p>\r\n\r\n<h4>Underperformance of U.S. Active Funds<\/h4>\r\n<table border=\"1\" cellpadding=\"10\">\r\n  <thead>\r\n    <tr>\r\n      <th>Timeframe<\/th>\r\n      <th>S&#038;P 500 (Large-Cap)<\/th>\r\n      <th>S&#038;P SmallCap 600 (Small-Cap)<\/th>\r\n    <\/tr>\r\n  <\/thead>\r\n  <tbody>\r\n    <tr>\r\n      <td>10 Years<\/td>\r\n      <td>83% of funds underperformed the S&#038;P 500<\/td>\r\n      <td>80% of funds underperformed the S&#038;P SmallCap 600<\/td>\r\n    <\/tr>\r\n    <tr>\r\n      <td>20 Years<\/td>\r\n      <td>94% of funds underperformed the S&#038;P 500<\/td>\r\n      <td>93% of funds underperformed the S&#038;P SmallCap 600<\/td>\r\n    <\/tr>\r\n  <\/tbody>\r\n<\/table>\r\n\r\n<ul>\r\n  <li>In the past 20 years, 70% of U.S. domestic stock funds have been dissolved.<\/li>\r\n  <li>Similarly, 66% of global\/international stock funds and 52% of bond funds have been dissolved.<\/li>\r\n<\/ul>\r\n\r\n<h3>Why Index Funds Are Rising in Popularity<\/h3>\r\n<p>Index funds are becoming more popular due to their consistent performance and increasing inflows of capital.<\/p>\r\n<ul>\r\n  <li><strong>60% of capital flows into indexes<\/strong>: In the U.S., 60% of mutual fund assets are invested in index funds.<\/li>\r\n  <li><strong>Low costs<\/strong>: Since there\u2019s no active stock selection, management fees are much lower.<\/li>\r\n  <li><strong>Market-average returns<\/strong>: You benefit from the overall growth of the market.<\/li>\r\n<\/ul>\r\n\r\n<h3>Why the S&#038;P 500 is Performing So Well<\/h3>\r\n<p>The success of the S&#038;P 500 is driven not only by U.S. economic growth and corporate innovation but also by long-term investment programs like 401(k)s in the U.S. and tax-advantaged accounts like Japan\u2019s Tsumitate NISA.<\/p>\r\n<p>These programs encourage steady inflows into the S&#038;P 500, helping the index\u2019s constituent stocks maintain strong performance.<\/p>\r\n\r\n<h3>Why Active Funds Can\u2019t Beat the S&#038;P 500<\/h3>\r\n<p>Active funds struggle to beat the S&#038;P 500 for multiple reasons beyond high fees.<\/p>\r\n<ul>\r\n  <li><strong>Fees<\/strong>: Active funds have high trading and research costs, which reduce returns.<\/li>\r\n  <li><strong>Market efficiency<\/strong>: Since stock prices quickly reflect all available information, even professional fund managers struggle to outperform the market average.<\/li>\r\n  <li><strong>Behavior\r\n\r\nal biases<\/strong>: Fund managers may take excessive risks due to overconfidence or short-term pressures.<\/li>\r\n  <li><strong>Trading costs<\/strong>: Frequent trading in active funds incurs costs that negatively impact returns.<\/li>\r\n<\/ul>\r\n\r\n<p>For these reasons, index funds, with their low costs and market-average returns, are generally a better option for long-term investors.<\/p>\r\n\r\n<h3>Can Individual Investors Beat the Pros?<\/h3>\r\n<p>Many individual investors try to make profits by timing the market or engaging in short-term trades, but even professional investors find this extremely difficult.<\/p>\r\n<p>Studies show that individual investors tend to let emotions dictate their decisions, often buying high and selling low, resulting in losses.<\/p>\r\n<p>Even professional fund managers find it challenging to beat the market averages like the S&#038;P 500 over the long term. Short-term trading only compounds the difficulty.<\/p>\r\n<p>Therefore, the best strategy for individual investors is to avoid short-term trading and <strong>invest in index funds with a long-term perspective<\/strong>.<\/p>\r\n\r\n<h2>Conclusion: Index Funds Are the Key to Long-Term Investment Success<\/h2>\r\n<img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/kia-tips.com\/wp-content\/uploads\/2024\/09\/DCA_vs_BuyTheDip_Strategy_Comparison_with_WarrenBuffett_Quote-kia-tips-com.png\" alt=\"\" width=\"728\" height=\"410\" class=\"aligncenter size-full wp-image-6618\" srcset=\"https:\/\/kia-tips.com\/wp-content\/uploads\/2024\/09\/DCA_vs_BuyTheDip_Strategy_Comparison_with_WarrenBuffett_Quote-kia-tips-com.png 728w, https:\/\/kia-tips.com\/wp-content\/uploads\/2024\/09\/DCA_vs_BuyTheDip_Strategy_Comparison_with_WarrenBuffett_Quote-kia-tips-com-300x169.png 300w, https:\/\/kia-tips.com\/wp-content\/uploads\/2024\/09\/DCA_vs_BuyTheDip_Strategy_Comparison_with_WarrenBuffett_Quote-kia-tips-com-160x90.png 160w\" sizes=\"auto, (max-width: 728px) 100vw, 728px\" \/>\r\n\r\n<p>It\u2019s clear that <strong>index funds offer superior long-term returns<\/strong>.<\/p>\r\n<ul>\r\n  <li>Active funds come with high fees and a higher risk of underperformance<\/li>\r\n  <li>Warren Buffett himself recommends the S&#038;P 500 index<\/li>\r\n  <li>Index funds outperform in global equity and bond markets as well<\/li>\r\n<\/ul>\r\n\r\n<p>If you\u2019re investing for the long term, index funds, particularly the S&#038;P 500, are a smart choice.<\/p>\r\n\r\n<p class=\"source\">Source: <a href=\"https:\/\/www.ginsglobal.com\/articles\/94-of-us-fund-managers-underperform-sp-500-over-20-years\/\" target=\"_blank\" rel=\"noopener\">94% of U.S. Fund Managers Underperform the S&#038;P 500 Over 20 Years<\/a><\/p>\r\n\r\n<h4>Recommended Book: &#8220;The Loser&#8217;s Game&#8221; [PR]<\/h4>\r\n<div id=\"rinkerid6944\" class=\"yyi-rinker-contents  yyi-rinker-tagid-170 yyi-rinker-postid-6944 yyi-rinker-img-m yyi-rinker-catid-168 \">\n\t<div class=\"yyi-rinker-box\">\n\t\t<div class=\"yyi-rinker-image\">\n\t\t\t\t\t\t\t<a href=\"https:\/\/www.amazon.co.jp\/dp\/B09P4Q56W9?tag=kia-tips-22&#038;linkCode=ogi&#038;th=1&#038;psc=1\" rel=\"nofollow\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/m.media-amazon.com\/images\/I\/41VOwrHoGyL._SL160_.jpg\" width=\"109\" height=\"160\" class=\"yyi-rinker-main-img\" style=\"border: none;\"><\/a>\t\t\t\t\t<\/div>\n\t\t<div class=\"yyi-rinker-info\">\n\t\t\t<div class=\"yyi-rinker-title\">\n\t\t\t\t\t\t\t\t\t<a href=\"https:\/\/www.amazon.co.jp\/dp\/B09P4Q56W9?tag=kia-tips-22&#038;linkCode=ogi&#038;th=1&#038;psc=1\" rel=\"nofollow\">\u6557\u8005\u306e\u30b2\u30fc\u30e0\uff3b\u539f\u8457\u7b2c\uff18\u7248\uff3d (\u65e5\u672c\u7d4c\u6e08\u65b0\u805e\u51fa\u7248)<\/a>\t\t\t\t\t\t\t<\/div>\n\t\t\t<div class=\"yyi-rinker-detail\">\n\t\t\t\t\t\t\t<div class=\"credit-box\">created by&nbsp;<a href=\"https:\/\/oyakosodate.com\/rinker\/\" rel=\"nofollow noopener\" target=\"_blank\" >Rinker<\/a><\/div>\n\t\t\t\t\t\t\t\t\t\t<div class=\"price-box\">\n\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t<ul class=\"yyi-rinker-links\">\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<li class=\"amazonkindlelink\">\n\t\t\t\t\t\t<a href=\"https:\/\/www.amazon.co.jp\/dp\/B09P4Q56W9?tag=kia-tips-22&amp;linkCode=ogi&amp;th=1&amp;psc=1\" rel=\"nofollow\" class=\"yyi-rinker-link\">Kindle<\/a>\t\t\t\t\t<\/li>\n\t\t\t\t\t\t\t\t                    <li class=\"amazonlink\">\n\t\t\t\t\t\t<a href=\"https:\/\/www.amazon.co.jp\/gp\/search?ie=UTF8&amp;keywords=%E6%95%97%E8%80%85%E3%81%AE%E3%82%B2%E3%83%BC%E3%83%A0&amp;tag=kia-tips-22&amp;index=blended&amp;linkCode=ure&amp;creative=6339\" rel=\"nofollow\" class=\"yyi-rinker-link\">Amazon<\/a>\t\t\t\t\t<\/li>\n\t\t\t\t\t\t\t\t\t\t\t\t\t<li class=\"rakutenlink\">\n\t\t\t\t\t\t<a href=\"https:\/\/hb.afl.rakuten.co.jp\/hgc\/383a355b.4ba53579.383a355c.2488a0ad\/Rinker_o_20240911021203?pc=https%3A%2F%2Fsearch.rakuten.co.jp%2Fsearch%2Fmall%2F%25E6%2595%2597%25E8%2580%2585%25E3%2581%25AE%25E3%2582%25B2%25E3%2583%25BC%25E3%2583%25A0%2F%3Ff%3D1%26grp%3Dproduct&amp;m=https%3A%2F%2Fsearch.rakuten.co.jp%2Fsearch%2Fmall%2F%25E6%2595%2597%25E8%2580%2585%25E3%2581%25AE%25E3%2582%25B2%25E3%2583%25BC%25E3%2583%25A0%2F%3Ff%3D1%26grp%3Dproduct\" rel=\"nofollow\" class=\"yyi-rinker-link\">\u697d\u5929\u5e02\u5834<\/a>\t\t\t\t\t<\/li>\n\t\t\t\t\t\t\t\t\t\t\t\t\t<li class=\"yahoolink\">\n\t\t\t\t\t\t<a href=\"https:\/\/ck.jp.ap.valuecommerce.com\/servlet\/referral?sid=3731070&amp;pid=890885548&amp;vc_url=https%3A%2F%2Fshopping.yahoo.co.jp%2Fsearch%3Fp%3D%25E6%2595%2597%25E8%2580%2585%25E3%2581%25AE%25E3%2582%25B2%25E3%2583%25BC%25E3%2583%25A0\" rel=\"nofollow\" class=\"yyi-rinker-link\">Yahoo\u30b7\u30e7\u30c3\u30d4\u30f3\u30b0<\/a><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/ad.jp.ap.valuecommerce.com\/servlet\/gifbanner?sid=3731070&pid=890885548\" height=\"1\" width=\"1\" border=\"0\">\t\t\t\t\t<\/li>\n\t\t\t\t                                    <li class=\"mercarilink\">\n                        <a href=\"https:\/\/jp.mercari.com\/search?keyword=%E6%95%97%E8%80%85%E3%81%AE%E3%82%B2%E3%83%BC%E3%83%A0&amp;utm_source=Rinker&amp;afid=1768157981\" rel=\"nofollow\" class=\"yyi-rinker-link\">\u30e1\u30eb\u30ab\u30ea<\/a>                    <\/li>\n                \t\t\t\t\t\t\t\t\t\t\t<\/ul>\n\t\t\t\t\t<\/div>\n\t<\/div>\n<\/div>\n\r\n<div class='recommendations-simple'>\r\n  <div class='recommendations_title'>Key Points of This Book<\/div>\r\n  <ul>\r\n    <li>Long-term holding of the S&#038;P 500 is the best strategy<\/li>\r\n    <li>Even professionals can&#8217;t predict market movements<\/li>\r\n    <li>Low fees are the key to success<\/li>\r\n  <\/ul>\r\n<\/div>\r\n","protected":false},"excerpt":{"rendered":"If you want to succeed in U.S. stock investing, an S&#038;P 500 index fund is your best bet. Surprisingly, 94%&#8230;","protected":false},"author":2,"featured_media":6693,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_locale":"en_US","_original_post":"https:\/\/kia-tips.com\/?p=6642","footnotes":""},"categories":[168],"tags":[],"class_list":{"0":"post-7426","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-investment","8":"en-US","9":"article cf"},"_links":{"self":[{"href":"https:\/\/kia-tips.com\/wp-json\/wp\/v2\/posts\/7426","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/kia-tips.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/kia-tips.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/kia-tips.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/kia-tips.com\/wp-json\/wp\/v2\/comments?post=7426"}],"version-history":[{"count":2,"href":"https:\/\/kia-tips.com\/wp-json\/wp\/v2\/posts\/7426\/revisions"}],"predecessor-version":[{"id":7434,"href":"https:\/\/kia-tips.com\/wp-json\/wp\/v2\/posts\/7426\/revisions\/7434"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/kia-tips.com\/wp-json\/wp\/v2\/media\/6693"}],"wp:attachment":[{"href":"https:\/\/kia-tips.com\/wp-json\/wp\/v2\/media?parent=7426"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/kia-tips.com\/wp-json\/wp\/v2\/categories?post=7426"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/kia-tips.com\/wp-json\/wp\/v2\/tags?post=7426"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}