The S&P 500
It has often been quoted that 80% of professional
money managers cannot outperform the S&P 500. So what is the
S&P 500? Well, to answer the questions "How did the stock
market do today?" and "Is your portfolio beating the stock
market?" we need a way to measure the performance of the stock
market. The most commonly-used measurement is the S&P 500 Index.
The S&P 500 Index is determined by combining
the price movements of 500 of the largest companies in the United
States. It's a broad measure of stock price movements using large,
generally "safe"
companies.
Standard & Poor's (S&P) describes the
index thusly: "Widely regarded as the standard for measuring
large-cap U.S. stock market performance, this popular index includes
a representative sample of leading companies in leading industries.
The S&P 500 is used by 97% of U.S. money managers and pension
plan sponsors. More than $1 trillion is indexed to the S&P 500."
Since 80% of professional money managers
cannot outperform the S&P 500, if an investor's portfolio
can beat the S&P 500 by even a fraction of a percentage,
then that investor is in the top 20% of all investors. Our
Primary Stock Portfolio
has easily outperformed the S&P 500.
Investors can invest directly in the S&P 500.
Probably the most common way is through no-load index mutual
funds. The Vanguard 500 Index is one such index fund (ticker
symbol VFINX). When comparing our performance to the S&P
500, we use VFINX as a proxy for the S&P 500. Whenever
we recommend an investment, an equal amount is invested in
VFINX in our tracking portfolio. This way we can compare our
returns to returns that an investor could actually achieve
had they instead invested in an S&P 500 index fund.
-Rex M. Jacobsen
Sr. Editor
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