97% of All Money Managers Don't Do as Well as a Third Grader

By Rick Kahler via Iris.xyz

Steve Forbes, editor of the well-respected financial publication Forbes Magazine, once said, “You make more selling advice than following it. It’s one of the things we count on in the magazine business, along with the short memory of our readers.”

Scores of publications sell advice on their proprietary investing secrets. In addition, hundreds of thousands of active money managers claim they can “beat the market” and give you above average returns. Usually, “the market” this advice refers to is the Standard & Poor’s 500 Index.

Investing in the S&P 500 Index simply means owning a fraction of every one of the largest 500 companies in the US. No skill is involved at all; a third grader can do this.

Accepting average market returns through an index fund is termed “passive” investing, while trying to beat the market is called “active” investing. Enticing as the latter may seem, very few active investors manage to do it.

A recent study cited by Dimensional Fund Advisors found that only 17% of money managers beat the S&P 500 Index over 15 years.

A similar study done by Dalbar, Inc. found that over 20 years, just 3% of money managers beat the S&P 500 Index. In other words, 97% of all money managers didn’t do as well as a third grader who invested in the S&P 500 Index.