Have you ever wondered why your annual returns may be 2-3% lower than the S&P 500’s performance, even though you’re invested in funds that supposedly track it? What makes the mutual funds your advisor recommends different from the thousands of others out there? Is sticking your money in an index fund going to help you reduce risk during a recession? And finally, if all your advisor is doing is picking a few funds, why not just do that yourself and cut out the middle man? Some advisors still use a tired investment formula that expired right around 2008: Put the client’s money in a mutual fund or ETF, and let the stock market do the rest. The problem is that mutual funds can objectively be a bad investment. Research by SPIVA shows that almost 80% of them underperform the S&P 500. Factor in multiple layers of fees, and it’s no wonder investors can see returns 2-4% lower than the index their fund is “tracking.” ETFs are better, but they still have limitations. They track the market, which means that when the market is doing poorly, so does your money. Almost any investment tool can look good during a roaring bull market like we experienced after the last Great Recession. But when the market is volatile, it’s difficult to generate sustainable returns by investing in a few funds and calling it a day. Fortunately, there’s a better way. You can create a portfolio that has the potential to outperform benchmarks, without taking on more risk than the benchmark itself. It has nothing to do with alternative investments, options trading, crypto, or any of the other “hot and shiny” things the financial newsletter industry loves to push.
