Did you know that 92% of funds don't beat the market? Or that a bear market happens on average about every 3.6 years with a decline of 36%?
Without knowing some of these statistics on investing. We set ourselves up for failure instead of success.
Most of us started our journey not knowing some simple statistics. That could save us time, headache, and money.
92% of Funds Doesn't Beat The Market
Over 15 years, 92% of large-cap funds don't beat the S&P 500 index.
Over shorter periods, a greater amount does indeed beat the index. 1 Year is 64%, 10 years 85%.
There is a reason why this one is first. We should be way better to invest in low-cost index funds & ETFs rather than buying other active funds.
And to be honest it can feel like a waste of time researching. And hand picking stocks when we could much simpler beat 92% of large-cap funds.
There is no shame in going for the smarter and simpler way. I mean who would cut the grass using scissors with the tools available today?
If you still want to hand pick stocks and buy mutual funds please at least benchmark yourself. Buying a low amount in an index fund and comparing over the long haul
Don’t look for the needle in the haystack. Just buy the haystack. -John C. Bogle
John C. Bogle started the first index fund, vanguard, and has a big community of bogleheads. That uses strategies to index investing.
Warren Buffet, one of the best investors alive, is also a big fan of index funds.
Stocks Go Up 76% of The Time
From 1975 to 2022 stocks in S&P 500 have been going up about 76% of the time.
This also means that the rest of the 24% stocks will go down.
Selling is most likely a worse thing to do than buying stocks.
This doesn't mean for any stock just stocks as a whole. Some will go down to 0 and lose everything.
Never going out of the market is a great strategy for a solid portfolio even if losses are made. Since knowing this statistic it's a calculated loss. That we know will eventually end in earning.
Like counting cards and still losing we continue to play since we know the odds are in our favor.
Every 3.6 Years there's a Bear Market
On average every 3.6 years, there is a bear market, the average decline is 36%. And the average length of a bear market is 9.6 months.
A bear market is a major market index decline of 20% or more from recent highs under a longer period.
Someone investing in the stock market needs to have the stomach for it. Few people can withstand losses even if it's not realized.
Read more here: Crashes and Bear Markets. How Bad Can It Get?
90% of traders lose money in the stock market
80% lose money, 10% break even and 10% consistently earn.
Buying stocks and selling them the same or the next day seems not to be that good of a strategy. Only about 2% of day traders make money after fees
The stock market is also a good place to gamble rather than invest. People go in speculating without having any kind of strategy.
Trading stocks is a lot harder than investing so it is always better to have that in mind when going into the market.
The Average Investor Holds shares for 5.5 Months
Your money is like a bar of soap. The more you handle it, the less you’ll have. - Gene Fama Jr
Sometimes making something easier can hurt. With stock trading being so easy so anyone could do it within minutes. The stock holding time has decreased.
With longer holding periods the chance of profitability increased. If of course, the investment was sound to even begin with.
Stocks Beats Real Estate
Between 1975-2021 so in 46 years, real estate has gone up 9.5 times while stocks have gone up 23,5 times
So a 4.97% year on year (YoY) compared to stocks at 7.09%.
But comparing them is not always fair since, for example, a house has a more tangible and true value for us. Stocks do most of us only own for the paper value it provides.
Also, the use of cheap debt gives investments leverage which is pretty easy to have with a house. Forcing margin calls on an investment portfolio is normal but not in houses. Which should make houses a better to have leverage on.
Compare yourself: Stocks vs Real Estate
80% of drivers think they are above average
This may not seem to be stock-related but psychology, but hear me out here. Most of our mistakes come from psychological factors.
There are several studies of Illusory superiority (or above-average effect). When people all from business to teaching do rate themselves as above average.
We like to think we're above average when we are not. Knowing some basic psychology as this one. Can sometimes help us to ignore that feeling and do the smart thing.
For example, the high number of stock traders is due to this reason. Most stock traders fail but still, most think they are better than average so they still trade.
Stocks go up and often do go down by a lot (average decline of 36% in 3.6 years) but over the long-term does go up way more than that.
So it can often feel like we're doing a bad investment because we're doing nothing. But in fact, doing nothing but owning is the best thing to do on average.
Most fund managers can't beat the market so why indeed should we have a mutual fund instead of a low-cost index fund?
Most of us think we're better than average. And it sometimes results in way worse than average outcomes.
The average investor holds stocks for 5.5 months. And that's not considered good since stocks need more time to pay off.
Stocks seem to be the best long-term asset to hold if we compare them to the housing market.