How Can I Beat the S&P 500? What the Evidence Says

A minority, and the share shrinks the longer you look. The standard scorecard is S&P Dow Jones Indices’ SPIVA report, which compares actively managed US funds with their benchmark after fees and counts funds that closed or merged along the way.

Source: S&P Dow Jones Indices, SPIVA U.S. Scorecard. S&P described 2025 as the fourth-worst year for active large-cap managers in the scorecard’s 25-year history. The mid-year 2026 report also found that only about 37% of the large-cap funds that existed 20 years earlier were still operating.

Individual investors face a second gap on top of fund returns: timing. Morningstar’s 2026 Mind the Gap study estimated that the average dollar in US mutual funds and ETFs earned 8.7% a year over the 10 years to December 31, 2025, while the funds themselves returned 9.9%. The 1.2-point difference came from when investors bought and sold.

Go deeper: what percentage of fund managers beat the market, why most investors can’t beat the S&P 500 and whether beating the S&P 500 is a realistic goal.

Because a few huge winners drive most of the index’s return, and a typical portfolio of a few dozen stocks is more likely to miss them than to catch them. Hendrik Bessembinder’s study “Do stocks outperform Treasury bills?” (Journal of Financial Economics, 2018) found that the best-performing 4% of listed US companies explained the entire net gain of the US stock market since 1926.

Exent’s own data shows the same skew among today’s largest companies:

Universe: the 500 largest US-listed stocks by market value today, with price history for the full period. This list has survivorship bias: companies that shrank, were acquired or went bankrupt are not in it, so the true share of stocks that beat the index was lower. On a risk-adjusted basis the bar was higher still: only 94 of 468 stocks beat the S&P 500’s Sharpe ratio over 5 years.

Four forces make the index hard to beat:

• Skewed winners. The median stock trailed the index in every period above. See how many stocks beat the S&P 500.
• Concentration at the top. When a handful of mega-caps lead, anyone who underweights them falls behind. See whether Mag 7 concentration makes the S&P harder to beat.
• Costs and taxes. Fees, spreads and taxes on realized gains come straight off returns every year. See beating the market after taxes and fees and expense ratio.
• Behaviour. Buying after rallies and selling after drops is the timing gap Morningstar measures.

Some managers do for a while, but the evidence says outperformance rarely persists long enough to be identified in advance. S&P’s U.S. Persistence Scorecard (year-end 2025) found that, outside small caps, none of the funds in the top quartile of their category in 2021 stayed in the top quartile every year through 2025. Only 4.5% of above-median large-cap funds stayed above the median for the whole period, below the 6.25% that pure chance would produce.

That does not prove skill is absent. It shows that a few good years are weak evidence. Telling skill from luck takes many years of returns, compared with a benchmark that carries the same risk.

Compare your return with a benchmark that carries the same risk, over the same dates, and look at return per unit of risk, not return alone. Most self-directed investors compare a concentrated growth portfolio with the S&P 500, or a dividend portfolio with the S&P 500, and draw the wrong conclusion either way.

Three corrections fix most of the error:

1. Use a risk-matched benchmark. Replace each holding with the index fund for its kind of asset, weighted like your portfolio. If your tech stocks beat the Nasdaq-100 and your bonds beat the bond index, you added value; if a tech-heavy portfolio merely beat the S&P 500, you may only have taken more risk. See why the S&P 500 is probably the wrong benchmark and what a risk-matched benchmark is.
2. Compare risk-adjusted numbers. A higher Sharpe ratio or Sortino ratio than the benchmark over the same years means more return for the risk taken. See how to measure risk-adjusted outperformance and what alpha is.
3. Use the right return math. Deposits and withdrawals distort simple percentage gains. Use time-weighted return to judge decisions, and CAGR to compare periods of different length.

For reference, here is what the benchmark itself did, with dividends reinvested:

Source: same data, as of Sep 30, 2026. Those were unusually strong years, so a good result in absolute terms can still trail.

Rarely on both counts. In backtests from July 2016 to September 2026, 4 of 18 well-known strategies beat the S&P 500’s annual return of 15.2%, and only 3 beat its Sharpe ratio of 0.88. Most strategies that cut volatility also cut return in a decade led by US large-cap growth.

Sorted by Sharpe ratio; the highlighted row is the benchmark. Periods run July 2016 to September 2026, except risk parity (from July 2017) and the two optimized portfolios (from July 2019). The Magnificent 7 basket is chosen with hindsight: those seven companies are on the list because they became the biggest winners, so its result could not have been planned in 2016. Compare every strategy on the strategies page.

Backtested (hypothetical) results calculated by Exent from historical ETF and stock prices with dividends reinvested and no trading costs or taxes beyond the funds’ own fees. Backtests are not actual trading and carry hindsight bias. Past performance does not guarantee future results.

The levers that mattered were mostly about avoiding losses to costs, behaviour and hidden risk, not about finding the next big winner. None of them guarantees outperformance.

Market timing deserves its own warning. In the backtest above, the 10-month trend filter cut the COVID-crash loss to −7.7% from −19.4% for the S&P 500, but it still lost −20.1% in 2022 and returned 9.4% a year against 15.2%. Timing rules trade upside for a smaller crash, and they do not always deliver the smaller crash.

For most self-directed investors, the achievable target is not “beat the S&P 500 every year”. It is “earn a fair return for the risk I actually carry, and stop giving returns away”. That goal is measurable, and it is within your control:

The portfolio optimization guide explains how to raise return per unit of risk, and the portfolio analysis guide covers the checks that find hidden risk.