The Top Reason to Avoid Trying to Beat the S&P 500

Hi, I'm Tyler. I'm a former financial advisor and portfolio manager, and now I create financial content for free so that you don't have to pay for it.

The Illusion of Beating the Market

The number one reason you do not want to beat the S&P 500 is that many new investors believe they are outperforming the market each day.

The Role of Tech Stocks

What many of these investors don't realize is that they've often beaten the S&P 500 on a given day because a higher percentage of their portfolio is weighted in tech stocks, which are highly volatile. This can lead to big ups and big downs.

A Portfolio Comparison

Consider two portfolios:

Portfolio A gains 20% this year and 0% next year.
Portfolio B gains 10% this year and 10% next year.

Although both portfolios average 10% returns, after two years, Portfolio A has made 20%, while Portfolio B has made 21% because of compound interest and lower volatility.

Building the Ideal Portfolio

When creating the ideal portfolio for long-term wealth building, remember to diversify across various factors:

Sectors: Tech, healthcare, utility
Market Cap: Large, small, micro
Geographical Region
Asset Class: Stocks, bonds, real estate alternatives

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