facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog search brokercheck brokercheck Play Pause
Don't Try and Outguess the Market Thumbnail

Don't Try and Outguess the Market

Trying to beat the market by stock picking and market timing is incredibly difficult over long periods of time.  But you may wonder, can't I find someone else who can beat the market for me?

The evidence clearly suggests that the answer is no.  In fact, if you invested in a US based equity or fixed income mutual fund in 2003, the likelihood that your chosen fund closed down over the ensuing 15 years was greater than the likelihood of the fund outperforming it's benchmark over that period.

Why is this?  Mostly because actively managed mutual funds carry large fees.  Over longer periods of time, it is nearly impossible for fund managers to pick winning securities and earn enough return to make up for the cost of the fees that they charge.

So, what if I just try and pick winning mutual funds?  If I pick the hottest manager or top performing fund, surely that manager is highly skilled and can continue to outperform.  Unfortunately, also no.  Funds that were at the top of the pile only managed to stay at the top 25% of the time.  There is no evidence for the persistence of performance for active managers.

Find an investment philosophy that embraces market pricing, diversifies globally, and does not rely on your ability to pick winners and losers.  It's far more difficult than you may think.

Source: Charts from Dimensional Fund Advisors.  Photo by Chris Liverani on Unsplash

The information in this material is not intended as investment, tax, or legal advice.  Please consult your advisor or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.