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One Way to Beat the Market

Selena Maranjian
May 9, 2009

Chances are, you've run across advice like the following many times:

  • Invest in a broad-market index fund, such as one based on the S&P 500, and you'll earn the market's return, which has averaged around 10% over many decades.
  • Aim higher than that by carefully choosing some managed mutual funds, because a relatively small number of them will beat the market.
  • Aim even higher than that by investing in some carefully selected individual stocks, because they have the potential to far outstrip mutual funds.

It's all true, and I've even offered that same advice myself, many times. I have a nagging worry, though, when I offer it. I worry that people might look at these three options and decide to skip managed funds.

And that would be a mistake.

Funds can be powerful
In fact, a number of managed funds sport performances superior to many well-respected stocks.

Here -- check out the 10-year average returns for some well-known names in the S&P 500 (remembering that during this period, the S&P 500 itself averaged a 2.2% annual loss):


10-Year Avg. Annual Returns

Microsoft (Nasdaq: MSFT  )

(5.2%) (Nasdaq: AMZN  )




Data: as of May 8, 2009.

Even Cisco Systems (Nasdaq: CSCO  ) , which many of us are used to thinking of as an aggressive highflier, posted a 10-year average loss greater than the S&P 500's.

Meanwhile, check out the performance of these mutual funds:


10-Year Avg. Return

Recent Top Holdings

Buffalo Small Cap (BUFSX)


Corinthian Colleges, Panera Bread, DeVry

T. Rowe Price New Era (PRNEX)


PotashCorp (NYSE: POT  ) , Chevron (NYSE: CVX  ) , ExxonMobil

Meridian Value (MVALX)


Verizon (NYSE: VZ  ) , Intel (Nasdaq: INTC  ) , Marvel