The S&P 500 and the Power of Indexing
No matter how sophisticated the strategy or approach, the S&P 500 is the toughest opponent in investing. As we get close to winding up the first competition and reset the bots, it is worth noting the real winner of our competition, the S&P 500. Since we built the bots, the S&P 500 has returned 3.86% or approximately 4.1% if dividends are included. At launch, the S&P 500 was 7,431.46, and it closed Friday at 7,718.60. We didn’t build it, but it is really tough to beat. Here are the final standings if the S&P 500 is included:
| Competitor | Season Return |
|---|---|
| S&P 500 | +4.1% |
| The Steward | -1.8% |
| The Trigger | -12.10% |
| The Risk Taker | -27.55% |
| The Consensus | -85.51% |
The Risk Taker boomed and busted over 12 weeks, while The Consensus just chased the momentum trading of the other bots, but was always a week behind.
The History of the S&P 500
The S&P 500 was released on March 4, 1957, when it was expanded to approximately 500 stocks like it is structured today. Prior to that, the lack of electronic calculation methods made it too difficult to compile the data for so many companies. Since that day, the compound annual return for the index is 10.71%. There are good years and bad years included in that number, but many more good years than bad.
Back in 1957, $1,000 adjusted for inflation would have been equivalent to about $84.15. If you had put $84.15 in the S&P 500 at that point, it would be worth $99,151 today. Over 69 years, the equivalent of $1,000 would be worth about $100,000 today even after inflation. The past isn’t the future, but let’s admire that.
The S&P 500 is Difficult for Anyone to Beat
There are a lot of active managers of mutual funds in the market and a lot of marketing hype, but buying a low-cost S&P 500 ETF or mutual fund has outperformed active management. In 2025, 79% of all actively managed large-cap mutual funds failed to beat the S&P 500. In 2024, 65% of active managers failed to beat the S&P 500. Stretch the horizon out to 15 years, and the numbers for active management gets even worse. Over 15 years, 89% of actively managed funds fell short.
Industry groups do dispute these numbers, arguing that the equal weighting of these actively managed funds includes some smaller, less successful funds that skew the results. Still, the majority of professionally managed funds don’t beat the S&P 500 index.
Why is the S&P 500 So Hard to Beat?
It is difficult to beat because it is the 500 best companies traded on the U.S. exchanges, and it is weighted towards the most successful companies with the highest market capitalizations. It automatically rebalances towards the most successful businesses. It also doesn’t cost a lot to index. There are no large asset management fees to offset research teams and marketing departments with the need for profits after expenses. There is not a lot of turnover, buys or sells. Low fees are the primary driver as actively managed funds with lower fees tend to outperform actively managed funds with higher fees. Those fees compound over time and cause a real drag on performance.
Using the S&P 500 on Your Investing Journey
I’m not anyone’s financial advisor, but I have always been a proponent of the index plus a few strategy. The S&P 500 serves as the base. If someone is interested in learning more about investing, they could always add a few companies to their portfolio while the S&P index does most of the work and has the highest allocation. It is a way to learn while not taking too much risk. Personally, I have become more concerned about the concentration risk of the AI trade in the S&P 500 as the top 10 companies have grown to comprise almost 40% of the S&P 500. Diversification remains a sound risk-management idea.
As we start a new competition with our bots, we will guide them toward them to a more patient approach. They tended toward more trading in their first attempt, always chasing market momentum. We will see if they can improve over the next quarter.
As always, this is not investing advice. We are all learning here!
