Why would anyone buy an index fund and guarantee an average return? You don’t want to be average, do you? Average is for losers!
Or so you might think if you watched CNBC all day. In reality, the index outperforms active managers more often than not. Every six months, Standard and Poors releases a report (S&P Indexes Versus Active or SPIVA, for short) on how many active managers outperform their benchmark. Over the short term, active managers beat the S&P equity indexes about 43% of the time. Over longer time frames active managers do worse. Only 20% of US Large Cap managers beat the S&P 500 over the last 3 years. 18% of US Large Cap funds were merged or liquidated over the last 3 years. An active manager had almost as much of a chance to disappear as he/she did to beat the market over the last three years. 27% of US Large Cap managers beat the S&P 500 over 5 years while 26% of them disappeared.
Consistently beating 70-80% of the competition is anything but average.