For individuals, investing in the stock market can be a daunting task. Although many of these people trust expert fund managers to boost their returns, USA reports that the majority of firms paid to generate better-than-average returns often fail to beat the market. To be considered successful, a fund must show that it can provide better performance than benchmark indices like the S&P 500 on a consistent basis. If it can’t beat them, then using the service just isn’t worth the money.
According to data provided by the 2015 SPIVA Scorecard, large-cap fund managers, those trading some of the largest companies in the market, failed to beat the benchmark 66 percent of the time during that year, 84 percent of the time over five years, and 82 percent of the time over the last ten years. Small-cap and mid-cap managers had similarly disappointing performance in their areas. They point out that some managers have a proven track record of results, but even those firms that beat the market for a year or two tend to lose ground over time. Adding in the fund’s management fees can also turn a winning portfolio into a loser, and nobody wants to see their gains go from their retirement account to the manager.
The reasons for this lack of performance are hard to uncover, but Forbes magazine reminds readers that there are only a couple of ways to beat the market: access to information other people don’t have or being lucky. For most investors, luck is not something they would likely want to trust their money to, and even the experts don’t have infinite knowledge about every company and market trend. As for those with the best information, average investors won’t be able to discover which firms have it until long after the returns have already been generated.