What Does it Mean to Beat the Market?
When traders and investors speak of “beating the market”, they’re typically referring to outperforming Standard & Poor’s 500 Index (S&P 500) – one of (if not the most) popular benchmarks of U.S. stock performance. The S&P 500 has returned approximately 10% per year on average (only about 7% when adjusted for inflation). It’s a diverse group of stocks chosen by economists (500 different companies in total) that essentially mirror the overall performance of large-caps.
Another popular benchmark that is often used to analyze if individual traders or fund managers have beaten the market is the Dow Jones Industrial Average – which tracks 30 of the most significant companies on Wall Street, including: General Electric, Disney, Pfizer, Apple, Coca-Cola, Nike, and Microsoft. Benchmarks like the S&P 500 and Dow Jones Industrial Average provide market participants with an efficient method of tracking overall market health. It also provides them with a goal to accomplish – is your portfolio beating the market year in and year out?