Smarter than the Market? Don’t Bet Your Retirement

Matt McDonough
2 min readMay 12, 2022

Are you better than average? This assumption is incredibly dangerous in investing. You may strive for excellence and significantly above market returns. But meeting the market average is much harder than you expect.

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How Above Average Are You?

Overconfidence is such an issue that the SEC’s Office of Investor Education and Advocacy published ten considerations before investing in mutual funds.

These considerations include: assessing risk, asset allocation, portfolio diversification, savings/debt levels, among others.

Are you confident that you are an expert in all of these areas? Even if you are, this SEC publication does not mention the tax implications of investing.

Are you confident in your understanding of interest income, dividends, short-term v. long-term capital gains, or any other type of distributions’ tax implications?

Being an expert in any one of these fields makes you above average, being an expert in multiple fields makes you an expert or a professional. Is this you?

Are Professionals An Exception To The Rule?

In short, no. But it depends on how long you want to try to beat the market.

Standard Poor’s Index Versus Active assesses the percentage of professionally managed equity funds in the US that underperform the market, most recently in mid-year 2021.

This analysis details that professionals underperformed the market approximately 60 to 70 percent of the time over the past 1 to 5 years. In addition, approximately 90 percent of professionals fail to keep up with the market over the past 10 or 20 years.

So, why is it so difficult to beat the market or to pay an expert to beat the market?

1. Investment fees.

2. Taxes, and

3. Human Emotions.

Over long periods of time, the first two eat away at investment earnings and the third leads to bad decisions. This combination puts active investors at a significant disadvantage against the market as a whole.

You Are Not An Exception, But Do Not Let That Stop You

Do not expect to beat the market over time! Even most investment professionals fail to achieve this over the course of years and decades. Researching the proper stocks and bonds that will consistently beat the market is a full-time job that requires significant amounts of luck to pull off. Relax and focus on index funds and enjoy your passive income.

Please reach out to with any questions or suggestions for other personal finance topics to cover.



Matt McDonough

Hello! I am a CPA by day, writer by night, and adventurer on the weekends. I’m on the lookout for fun ideas to read, please send anything interesting my way!