Outperform The S&P 500?
Is It Easy?
Introduction
For the average investor, one of the easiest ways of wealth building is to simply invest a certain amount of money every week or month on a consistent basis, over a long-time horizon.
History tells us that the average annual return of the S&P 500 is between 10-12% as we can see below:
Therefore, investing in a low cost ETF like VOO (Vanguard S&P 500 ETF) can be the best method for the average investor.
S&P 500 ETF (US)
For those in the US (or have access) VOO could be a great ETF to consider:
Expense ratio = 0.03% which is very reasonable in comparison to other S&P 500 ETF’s and we can see the top 10 holdings below:
We can also see the performance of this ETF:
Therefore, if you were to have held this ETF for the last 10 years, annually you would have gained 12.66%.
S&P 500 ETF (Europe)
For those in Europe (or have access) VUSA could be a great ETF to consider.
Expense ratio = 0.07% which is slightly higher than its US sibling but still reasonable in comparison to others.
The top 10 holdings below:
We can also see the performance of this ETF:
Therefore, if you were to have held this ETF for the last 10 years, annually you would have gained 12.31%.
Other ETFs
If you are interested in ETFs, we have released an episode running through the 5 Best ETFs below to consider:
I Want To Outperform The S&P 500!
To effectively outperform the S&P 500 we would need to get a better annual rate of return than what we stated above (12.3%-12.7%), otherwise we could just put our money in an ETF and sleep well at night.
Now there are risks with picking individual stocks, because if it was easy everyone would do it.
The data below (JPM Research) shows us that over the course of a 20-year period (specifically 2002-2021) the S&P 500 returned annually 9.5%, however the average investor who picked individual stocks returned only 3.6%!
Therefore, it is not easy, and one way we can start to try to outperform the S&P 500 is by looking at historical performance of those that did over the more recent period (10 years).
Stocks That Outperformed
As we can above, of which this is only a handful of examples, there are many stocks that over the last 10 years have outperformed the S&P 500.
10Y Total Return (includes dividends reinvested):
S&P 500 172.61%
MA 545.64%
COST 810.08%
AAPL 860.64%
MSFT 1,105.95%
LLY 1,595.69%
One important point to note here is that past performance is not an indicator of future performance, so just because these stocks have significantly outperformed the S&P 500 over the last 10 years it does not mean they will over the next 10.
However, this can be used as a good starting point to run through a list of stocks that have historically outperformed and then to run through them and identify whether or not you believe they will outperform them over the next 10 years (and beyond).
What we try and do on our YouTube channel is to identify stocks that we believe are undervalued and will outperform the S&P 500 - you can check this out here:
Latest YouTube Videos
Over the last week we have covered a few videos looking at undervalued dividend stocks as per below.
5 Best Dividend Growth Stocks To Buy Now In June 2024:
4 Dividend Kings ON SALE To Buy Now:
If you are interested in valuing stocks yourself we have created a valuation model below which you can pick up:
Conclusion
It is clearly not easy to outperform the S&P 500 as the data shows, however it is possible if you put the time in to research stocks, and this is what we try to do in our daily episodes.
Thanks For Reading!
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Note
I am not a financial advisor or licensed professional. Nothing I say or produce anywhere, should be considered as advice. All content is for educational purposes only. I am not responsible for any financial losses or gains. Invest and trade at your own risk.