June 6, 2016

Is it possible to beat the market?

"Beating the market" means trying to earn an investment return greater than that of the S&P 500 index, one of the most popular benchmarks of U.S. stock market performance.

Investment fees are one major barrier to beating the market. If you take the popular advice to invest in an S&P 500 index fund, your investment will perform identically to the S&P 500 and investment fees will be subtracted from those returns, preventing you from beating the market. Look for funds with ultra-low fees of 0.1 to 0.2% annually and you'll be close to equaling the market.

Taxes are another major barrier to beating the market. When you pay tax on your investment returns, you lose a significant percentage of your profit -15% or more, depending on your holding period.

Investor psychology presents a third barrier to beating the market. People have a tendency to buy high and sell low because they're inclined to buy when the market is performing well and they sell out of fear when the market starts to drop. This buying and selling behavior makes it impossible to beat the market.

Read more: Is it possible to beat the market? | Investopedia http://www.investopedia.com/ask/answers/12/beating-the-market.asp#ixzz4AoJHtIHr 

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