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How to consistently beat the market?

The goal of most active investors is to "beat the market," where the "market" is defined as the total return of the S&P 500 Index (ETF version is VOO). After fees and costs, most investors fail to top the index.

S&P 500 index includes all the best US companies and is the best index you can find in the world. The S&P 500 index acts as a benchmark of the performance of the U.S. stock market overall, dating back to the 1920s (in its current form, to the 1950s). The index has returned a historic annualized average return of around 11.88% since its 1957 inception through the end of 2021.

It's very hard, but it's possible. However, most active traders will fail to beat the market.

You can't beat the market through Life-Cycle fund, this is actually not a very good choice.

Of course. Warren Buffett can consistently beat the market through value investing and some leverage (insurance business).

Warren Buffett also has a recommended investment portfolio for regular investors:

90% low cost S&P 500 tracker (here Buffett specifically suggests Vanguard as a low-cost fund option), plus 10% short-term government bonds.

There are 2 easy ways that anybody can consistently beat the market:

  1. Use other people's free or low-cost money (2% is max), and invest your money in the ETF tracking S&P 500 index. You have to be able to keep those money as long as you need for a full market cycle. How much percentage you can beat the market depends on how much money you can get.

  2. Invest your money in the ETF tracking S&P 500 index, and have extra income not from your assets, for example have more savings (total salary minus all expenditures). How much percentage you can beat the market depends on how much extra income you can get.

Sometimes, even if you can beat the market, your return could still be negative when the market has a big drawdown (50% down). You need to understand market cycles. When you are approaching retirement or financial freedom, you have to be more careful, and the more important things to consider is not to beat the market but to conserve your capital.

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