Do Investment Advisors Always Beat the Market?
“How to Beat the Market” is a highly-searched term online. There are individuals and some firms that make a big deal about beating the market. For some, it seems to be their primary identity.
To be clear, to “beat the market” means you outperform the S&P 500. The S&P 500 is a stock market index that tracks the stock performance of 500 of the largest companies in the USA. It is considered the benchmark of the overall market As of March 13, 2020, the S&P 500 has an average 10-year annual return of 7.99%.
So, outperforming that benchmark can be a point of distinction for those who consistently do it. And there are those who have. But, when making investment decisions and selecting an investment advisor – should the primary goal be to beat the market? Or are there other, more important goals to consider?
Is There a Better Goal than to Beat the Market?
“The primary goal of an investor and their investment advisor should be to accomplish their specific, individual goals, not necessarily to just beat the S&P 500,” said Ned Karren, a founding partner of Kunath, Karren, Rinne & Atkin (now retired). Most investors have other assets in addition to stocks. We should all be more concerned about meeting the goals that they set with their investment advisor, rather than beating a particular index. There are more important considerations than to just beat the market.”
“Beating the S&P 500 is a narrow, simplified goal, and not the most important one to most clients,” says Karren. “Stocks are typically only a portion of one’s total investment picture. Registered Investment Advisors are obligated to do what is best for the client, based on a mutually-agreed upon set of goals. Someone who is banking their reputation on consistently beating the S&P might take risks that are based on emotion, or pride. They may not be keeping the client’s best interest in mind. They might be chasing fast money and not being very smart about overall investment goals.”
What is the More Important Question to Ask?
The more important question to ask, according to Bruce Rinne, founding partner of Kunath, Karren, Rinne & Atkin, is how successfully does a firm meet their clients’ respective goals?
“Registered Investment Advisors help their clients set realistic goals. These goals are based on the client’s needs, risk tolerance, and their mix of other assets. So, there’s a more important question to ask. It is: “Are you helping your clients to set realistic goals and then, by and large, helping them to accomplish those goals?”
What Should an Investment Advisor Do For You?
If you are actively investing, or thinking about starting, visit with a Registered Investment Advisor. To learn more about what an Investment Advisor should do for you, click here to download our free eBook “3 Things an Investment Advisor Should Do for You”.
Anatoliy Cherevach is a Chartered Financial Analyst and a Portfolio Manager with Kunath Karren Rinne & Atkin, LLC, with over 19 years of portfolio management and security analysis experience. Prior to joining KKRA, he was a Portfolio Manager and Research Analyst with Cohen & Steers. Anatoliy holds an MBA in finance from Pacific Lutheran University. He is an active member of the CFA Institute and CFA Society Seattle.
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