OnPlane Financial Advisors
Do Well. Be Well. Financially.

Blog | Flat Fee Financial Advisor | Washington DC

I like to write about what happens in our lives and how it can relate to our financial lives. Not always but most of the time. So keep checking in. I'm glad to have you reading along.

Better Than Average

In one of my peer groups, a fun poll was posed to us and essentially it asked if our profession (financial advisors) would be more fun if we could reliably beat the market. I got a good chuckle out of it, because, obviously, who doesn't want to beat the market?!? You do. I do. And yes, it would certainly make client conversations a little easier. Maybe a lot. Lol.

But this question also got me thinking. Why are we so wrapped up with trying to beat the market? I mean, seriously. I think it's dangerous, this idea that we could…should even deserve to reliably beat the market.

Google the phrase "beat the market". It’s okay, I’ll wait.

 … [insert Final Jeopardy Music]

If you didn’t search it, here are a few examples from the search:

  • Five Ways to Beat the Market

  • Beating the Market is Easy

  • Beat the Stock Market in 3 Easy Steps (my personal favorite, btw)

That last one slays me. I feel like it should come with an infomercial. I digress.

Look, beating the market is hard. And doing it consistently over longer periods of time is even harder.

DFA Landscape.png

According to Dimensional Fund Advisors 2019 Mutual Fund Landscape Report, 21% of all stock mutual funds not only survived (meaning they didn't go out of business or get renamed) but also beat their Morningstar benchmark. The study was conducted over a 10-year period ending Dec 31 2018. It included almost 3100 stock mutual funds which tells us only ~650 "beat the market" during that time frame.

For a longer time frame, let's look at the 20-year study period ending December 31, 2018. We have 2414 stock mutual funds at the start. Only 42% of them survived the study period and 23%  or ~555 of them were "winners" or beat their benchmark.

For us, the investor, to beat the market over 20 years would require three things:

  1. We have to avoid the 1864 funds that either didn't beat their benchmark or didn't survive the study period

  2. We have to identify one of the ~550 funds at the onset - before they start "beating the market"

  3. We have to stick with this fund(s) for a long period of time - meaning we have to behave

This is all very, very hard. It requires predictive skills aka guessing. And then hoping (praying?) our mutual fund(s) manager can also outguess the market. If we/he/she get it right, we're all lucky.


But it also means we have to be disciplined and ride that fund all the way through. We can't jump ship when the fund(s) have a down year. We can't get enamored with the other "hot" funds and switch to them because they've been beating the market.

We have to ride the waves.

Getting back to our earlier stats we know we have essentially a 1 in 5 chance that our fund or funds will "beat the market."

Most of us will focus in on that last stat and maybe rephrase the tone:


Why? Because in our own minds, we're ALL above average. C'mon, admit it. We are good at everything. That's what our ego tells us, anyway. It's true - read about it here. It's called ILLUSORY SUPERIORITY. And beating the market means we're in the group that did "better than average."

Statistically, it doesn't add up. Some of us have to be average or even below average. Sorry not sorry!

And some of us will realize lower than average rates of return. According to the statistic above, nearly 80% of us invested in stock mutual funds from 2009-2018 received returns lower than what their fund's benchmark produced. That's an even harder truth.

So if the vast majority of stock mutual fund investors are doomed to below average rates of return, what can we do?

I’m glad you asked.

First, let's get off this mirage of beating the market. The market returns are the market returns. No one can consistently and reliably beat the market over long periods of time. And one in five does not produce good odds.

Imagine hinging your ability to retire on 1 in 5 odds. Hard pass, thanks.

And then, let's just be average. Over the last 15 years, the S&P 500 average annual return* is over 7%. Over the last 10 years, the S&P 500 average annual return = over 12.5%. Yes, that means we're going to be average. In this case, average looks like a pretty good thing!

And what's with the obsession over rates of return anyway. They'll be what they'll be. Sure, we'd love for our rates of return to always be the best. Who wouldn't!?! Trying to beat the market means we are always obsessing and/or worrying and/or stressing about something we literally have zero control over.

Zero. Control.

Speaking of control…

Markets go up and markets go down - we don't know when either will happen. And neither does anyone else. Over time, markets go up more than they go down. Stop focusing on that. Let's focus on factors we can control. Things like:

Turnover, fees, and taxes

Over time, these all add up and eat into the "excess" returns a “beat the market” strategy might (if you're lucky) deliver. Instead, let’s seek to minimize these factors. These are some of the very few factors in your control when it comes to investing.

Portfolio Design

You are probably way less diversified than you think. It's not uncommon for me to review portfolios with a huge collection of overlapping funds that move in tandem with each other. When you're diversified, the opposite would be true. To paraphrase a colleague, if everything in your portfolio is up roughly the same amount, you're not diversified.

PS - my “average” rate of return example above using the S&P 500 is not a diversified portfolio

Rate of Savings

I harp on this a lot. The more we are able to save and invest on a monthly/yearly basis, the less we have to rely on rates of return to determine our financial success. To prove it, I’ll write another blog this summer showing how rate of savings will beat even the best rates of return.

Behave Behave Behave

To quote Austin Powers, ooooh behave baby!

Look, we are all our own worst enemies when it comes to investing and wrought with biases. Here’s a few:

  • Confirmation bias: "This stock/fund is gonna hit big, don’t' you agree?"

  • Hindsight bias: "I knew that was going to happen!" Umm, no you didn't.

  • Familiarity bias: investing only in stocks/funds you know, or sectors like technology because you work in tech.

On top of this we are constantly bombarded with irrelevant news and/or financial talking heads predicting (guessing!) that this dip is the real deal. Mix it all together and we have a recipe for investing failure.

Note: this last one, behavior, is not your fault or mine. It just how we're built.

Other areas where we can focus and have control:

  • where our money goes and why

  • how we protect our balance sheets

  • our appetite/tolerance for risk aka asset allocation

  • finding accountability in our financial lives

So if beating the market is hard and means most of us will statistically be “below average” when it comes to our investments, let’s do something about it. Above are a handful of tips to becoming average or even better than average around our investments and financial lives.

I'd wager it's easier to be average or above average in most if not all of these areas!

And who doesn't like to be better than average?!


*dividends reinvested