Can the S&P 500 be beaten?
You bet. But you’ve got to think like a trend follower.
Watch this space — I’ll be showing you an incredibly powerful way to put this sort of strategy to work this week.
Regards,
This post Dirty Secret Behind Mutual Funds Revealed appeared first on Daily Reckoning.
Today, trading expert Greg Guenthner isn’t pulling any punches.
In short, your mutual fund is a loser.
Even if you’re posting gains… benchmark indexes like the S&P 500 consistently beat the average mutual fund returns.
The reason is that, contrary to popular belief, the “buy and hold” strategy used with mutual funds is all wrong.
Read on for all the details…
Regards,
Amanda Stiltner
for The Daily Reckoning
The REAL Reason Your Mutual Fund Can’t Beat the S&P 500
By Greg Guenthner
Sorry, you’re probably not going to beat the S&P 500 this year.
Don’t worry, you’re not alone.
Only one in five U.S. stock funds have beat their benchmarks in the last five years, according to data from Morningstar.
When it comes to investing, pretty much nobody beats the averages. That’s the takeaway from the latest and greatest academic finance research, and it’s obvious from looking at the real-world performance data too.
“According to the numbers compiled annually by performance analytics firm Dalbar, the average stock mutual fund investor has seen average annualized returns of 4.67% over the last 20 years — just investing in the S&P 500 would have paid you 8.19% a year, on average,” our stat guy Jonas Elmerraji says. “That’s some pretty awful underperformance.”
You’d be justified in wondering if there’s a point to trying to beat the S&P anyway. Why not just buy an S&P 500 index fund and hold it forever?
More importantly, why’s it so damn hard to beat the S&P 500 in the first place?
As I’ll show you in a moment, everyone’s favorite stock market index is rigged against individual investors. But if you make one simple change to the way you approach the markets, you can stack the deck back in your favor.
Back to Jonas and some key facts about the S&P…
To figure out why the S&P 500 is so hard to beat, we’ve got to take a look at what it really is in the first place, Jonas explains. For starters, the S&P 500 gets a few advantages you won’t get in the real world. For instance, the S&P 500 doesn’t incur any trading fees. It doesn’t factor in any commissions. And it’s fully invested 100% of the time.
That’s obviously pretty hard to compete with, but it’s actually only a tiny part of the total picture.
After all, if you look at big, popular index funds like the SPDR S&P 500 ETF, most mutual funds can’t beat those either. What’s the real reason your portfolio can’t beat simple buy and hold?
It’s because the S&P 500 isn’t a “buy and hold” stock market index at all…
In fact, it’s a pretty active strategy. According to research done by Yale professor Richard N. Foster, at its current pace, 75% of the S&P 500 will be replaced in the next 10 years!
While the S&P 500 was designed to provide an accurate representation of how “the stock market” is doing as a whole, it’s actually something very different in practice.
S&P components are picked …read more
Source:: Daily Reckoning feed
The post Dirty Secret Behind Mutual Funds Revealed appeared first on Junior Mining Analyst.