The simple investment strategy that outperforms 88% of professional asset managers

Only a few of us do not dream of becoming rich, and many are already diligently saving and investing. It is easy to feel that we cannot keep up with the well-paid money managers on Wall Street, who achieve large profits through their expertise and skills. But do we really need to compete with them? The surprising answer is: No. In fact, we can easily outperform them. The secret lies in a simple strategy: invest in a low-cost, broadly diversified index fund that tracks, for example, the S&P 500 index—an index covering 500 of the largest American companies. The S&P 500 has achieved average annual gains of nearly 10% over long periods—a very respectable growth rate. If you invest $10,000 annually and these investments grow at 10% or a more conservative 8%, your investments could grow significantly. Of course, there are no guarantees in the stock market, and the actual growth may be higher or lower than 10% over your specific investment period. A study by S&P Global shows how solid index funds are. A large portion of equity funds lag behind their respective index funds. One reason for this is the fee structure: Nearly all funds charge expense ratios (annual fees) that often reach or exceed 1%. A 1% fee on a $10,000 investment means you give away $100 annually. Many index funds, however, charge only 0.10% or less—costing you only $10 or less per $10,000. An important point: If even highly qualified professionals struggle to outperform a broad index fund, it is unlikely you will easily achieve this. Even star investor Warren Buffett holds index funds in high regard. In his will, he has stipulated that the majority of the money he leaves to his wife shall be invested in a low-cost S&P 500 index fund. He even made a ten-year, one-million-dollar bet in favor of index funds—and won. Of course, you may still want to achieve above-average returns. That is perfectly fine. You could do this with a portion of your portfolio, while keeping the rest in index funds. To chase higher returns, you might include high-growth stocks in your portfolio. These stocks are linked to companies experiencing above-average growth, such as Nvidia, MercadoLibre, Palantir Technologies, Amazon, The Trade Desk, Intuitive Surgical, and Salesforce. Many growth stocks have performed spectacularly in the past and will continue to do so in the future, but there are no guarantees. Some might disappoint. Therefore, it is wise to spread your money across several of these stocks. Our investment philosophy involves investing in about 25 or more companies and holding the stocks for at least five years. However you approach it, make sure you are saving and investing for your future—and ideally following a comprehensive retirement plan you have developed. When our analyst team has a stock tip, it is worth listening. After all, the average total return of the Stock Advisor is 761%—a market-smashing performance compared to 167% for the S&P 500.