Most investors and funds don’t beat the S&P 500 after fees. This guide shows what a realistic version of “beating the market” looks like, what 19 backtested portfolios did against the index, and how an index core plus a small stock sleeve changes the math.
You can, but the odds are poor, and professionals mostly fail at it. S&P Dow Jones Indices’ SPIVA U.S. Year-End 2025 scorecard found that 79% of active large-cap US funds trailed the S&P 500 index in 2025. Winning streaks rarely last: in the U.S. Persistence Scorecard Year-End 2025, only 4.5% of large-cap funds in the top half of their peers stayed there in each of the next years, below the 6.25% pure chance would produce.
Individual investors face the same headwinds plus their own timing. Morningstar’s Mind the Gap 2026 study found that over the 10 years to Dec 31, 2025 the average dollar in US funds earned 8.7% a year while the funds themselves returned 9.9%. The gap came from when investors bought and sold. Why the index is so hard to beat is covered in why most investors can’t beat the S&P 500 and how many stocks beat the S&P 500.
For most investors it means earning more return for the risk taken, not the highest raw return. Three tests capture it:
Drawdowns matter because of the arithmetic of recovery. Illustrative: a $1,000,000 portfolio that falls 23.9% needs a 31.4% gain to get back to even. One that falls 45.7% needs an 84.2% gain. The bigger the hole, the longer the climb, and the more likely an investor near retirement sells at the bottom. More on the benchmark side in risk-matched benchmark and how to measure risk‑adjusted outperformance.
In the decade to Sep 2026 it was rare. Exent ran 19 monthly backtests from July 2016 to September 2026. The table shows a selection. These are hypothetical backtests on fund prices, without taxes or trading costs.
| Backtest (Jul 2016–Sep 2026) | Annual return | Sharpe ratio | Worst drawdown | 2022 | Years ahead of S&P 500 |
|---|---|---|---|---|---|
| S&P 500 (buy and hold) | 15.2% | 0.88 | 23.9% | −18.2% | — |
| Magnificent 7, equal weight | 36.5% | 1.25 | 45.7% | −45.1% | 8 of 9 |
| Nasdaq-100 | 21.5% | 1.03 | 32.6% | −32.6% | 7 of 9 |
| S&P 500 Growth | 17.8% | 0.92 | 30.5% | −29.5% | 7 of 9 |
| Momentum factor | 16.2% | 0.81 | 30.2% | −18.3% | 5 of 9 |
| Dividend growth | 12.6% | 0.80 | 20.2% | −9.8% | 3 of 9 |
| Minimum volatility | 9.4% | 0.63 | 19.1% | −9.4% | 2 of 9 |
| 60/40 stocks and bonds | 9.5% | 0.75 | 20.0% | −15.8% | 2 of 9 |
The pattern is a trade-off. Three backtests beat the S&P 500’s Sharpe ratio (Magnificent 7, Nasdaq-100, S&P 500 Growth), and all three had deeper drawdowns. Nine had smaller drawdowns, and every one of them had a lower Sharpe ratio. None of the 19 did both. In a decade led by the largest US companies, the cap-weighted index was a demanding benchmark.
Among funds, one example did manage all three tests over the period. The Invesco S&P 500 Momentum ETF (SPMO) returned 525.8% over the 10 years to Sep 30, 2026, against 310.7% for SPY, with a Sharpe ratio of 1.00 against 0.86 and a worst month-end drawdown of 21.3% against 23.9%. That is one fund in one decade, and momentum has had long losing stretches in other periods. More examples in can you beat the market with less risk.
Yes, but only by a fraction of what the stocks themselves do, which is the point. A core-satellite portfolio keeps most money in a low-cost index fund and puts a limited sleeve into individual picks. The sleeve’s results are diluted in both directions.
| Illustrative: $1,000,000, 80% index / 20% picks | Index | Picks | Whole portfolio |
|---|---|---|---|
| Picks beat the index by 5 points a year | +10% | +15% | +11% (1 point ahead) |
| Picks double in a flat year | 0% | +100% | +20% ($200,000) |
| Crash: picks fall twice as hard | −25% | −50% | −30% ($300,000) |
| Picks match the index, minus 1% extra costs | +10% | +9% | +9.8% |
Two lessons follow. A big winner in a 20% sleeve still moves the whole portfolio meaningfully. And a crash in the sleeve adds a few points of damage rather than a catastrophe, as long as the sleeve stays near its limit. That limit is the real decision; see how much to put in speculative stocks, core-satellite and position sizing.
One approach many self-directed investors use, written as a checklist:
Compare like with like, after costs, over long enough to include a bad year. Use time-weighted returns so deposits and withdrawals don’t distort the result, compare them with the risk-matched benchmark, and look at Sharpe ratio and worst drawdown alongside return. A single good year proves little; three to five years that include a downturn tell you more. If the satellite has trailed the core for that long, the honest conclusion may be that the core alone is the better portfolio. Separating skill from luck explains how long a record needs to be before it means something.
Most portfolios do not beat the S&P 500 after fees, so a realistic goal is to beat a risk-matched benchmark. Many investors hold a low-cost index core, cap a satellite of individual picks, and measure the result over several years after costs.
It is rare. In Exent’s 19 backtests from 2016 to Sep 2026, none had both a higher Sharpe ratio and a smaller worst drawdown than the S&P 500. One fund, an S&P 500 momentum ETF, did both over that decade, which is a past result and not a forecast.
They can lift returns, but only in proportion to their weight. Illustratively, a 20% sleeve that beats the index by 5 points a year adds about 1 point to the whole portfolio, and a sleeve that falls twice as hard in a crash adds about 5 points of extra loss.
In the decade to Sep 2026 an equal-weight Magnificent 7 basket returned 36.5% a year against 15.2% for the S&P 500, but it fell 45.1% in 2022 and had a worst drawdown of 45.7%. Past concentration in winners does not tell you which stocks will lead next.
At least three to five years that include a downturn. One-year results are dominated by luck and by whatever sector happened to lead.
Upload a screenshot of your holdings and get concentration, overlap, crash exposure and a risk-matched benchmark in about a minute.
Educational content, not investment advice. Examples are illustrative; past performance does not guarantee future results.