Beating The S&P 500 Isn't As Easy As It Sounds
The challenge every active investor underestimates
Beating the S&P 500 has become the measuring stick for whether you’re truly outperforming or underperforming as an investor.
It sounds simple enough, doesn’t it?
The truth is that consistently staying ahead of the index is one of the toughest challenges in investing.
Just how hard?
54.3% of U.S. large-cap equity fund managers underperformed the S&P 500 in the first six months of 2025 according to S&P Dow Jones Indices (SPDJI). In 2024, it was 65%.
Only 28% of large cap mutual funds are ahead of their benchmark this year.
It’s also not just large-cap funds that underperform.
According to Apollo, more than 80% of active managers in public markets underperform their index.
The chart below shows the underperformance of active managers in public equities by strategy. The bottom line is that over the past 10 years, 80% to 90% of active managers have underperformed their benchmarks across all strategies.
Even individual stocks have a hard time beating the S&P 500 index.
Only 37% or 183 stocks have outperformed the S&P 500 so far in 2025.
You would surely think that the Magnificent 7 have been outperforming the S&P 500.
Guess again.
Five of the seven stocks are trailing the S&P 500 in 2025. Only Nvidia and Google are beating it.
Maybe it isn’t quite as simple as people make it sound.
I can say that from experience. Over the past seven years, my own actively managed portfolio has finished ahead of the S&P 500 in five of them. This year it’s on track to do it again, which will make it six out of the past eight.
If you want a closer look at my full portfolio, I reviewed my performance and holdings through November in Investing Update: What Does December Hold?
My strategy isn’t perfect, and I’m sure there are investors and funds with stronger track records.
Here’s what has worked for me and what I focus on.