Why the S&P 500 is the Best (And Worst) Thing to Ever Happen to Investors

0:00Your brain did not evolve to invest. It evolved to keep you alive in a forest when a rustle in the bushes might be a snake or a predator or worse, your neighbor Todd telling you about a new stock. Which is to say, you're wired to react quickly, not think patiently. Hello friends, this is Tyler Gardner welcoming you to another episode of your Money Guide on the Side. where it is my job to simplify what seems complex, add nuance to what seems simple, and learn from and alongside some of the brightest minds in money, finance, and investing. So let's get started and get you one step closer to where you need to be.

0:44Quick note before we get into it, June's pre-order incentive for my book, Real Wealth, is the most personal thing I've ever agreed to share. Pre-order in June and submit your receipt at TylerGardner.com and you'll get an exclusive three-episode audio series that will never appear on this feed. Three pivotal moments in my own financial life. The humbling one, the embarrassing one, and the one that made me rethink everything. Three episodes, three moments, TylerGardner.com. Pre-order, submit your receipt, get the episodes delivered digitally in early July and receive every additional monthly incentive between now and the book's release on December 1st.

1:25And now introducing today's episode, what I am lovingly referring to as the tyranny of the benchmark. For reasons I can no longer fully explain, though at the time they felt highly rational and quite urgent, I once spent a summer attempting to build a spreadsheet that could outsmart the entire U.S. stock market. This was no small project. It involved dozens of tabs, thousands of data points, and at least one regrettable subscription to something called Alpha Wolf Trading Insights, which I will not be discussing further for legal and personal dignity reasons. But I had read the books. I had studied the charts.

2:04I had taught myself just enough statistics to be dangerous and just enough behavioral finance to develop a mildly superior attitude toward other people's investing mistakes. I had, in short, done everything right except the one thing that actually mattered, which was to stop what I was doing. And still, after all of that effort, after all of that self-belief, even after Alpha Wolf, my portfolio performed more or less exactly like a target date index retirement fund, only with more fees, way more anxiety, and considerably more self-delusion. which is when I began to suspect, with some reluctance, that perhaps I was not going to beat the stock market with consistency, as Peter Lynch had told me that I might be able to.

2:54And if you're being honest with yourself right now, you probably won't either. This is not an indictment of your intelligence. It is not a comment on your work ethic or your innate ability to see patterns and candlestick charts that resemble extinct sea creatures. It is just an observation of reality, backed by mountains of evidence, and delivered with genuine warmth and a gentle reminder that trying to outwit the market is like trying to outswim the tide. You can flail and splash and fight it all you want, but in the end, you're still getting pulled in the same direction as everyone else. Only now, you're exhausted and missing a sandal or two.

3:38Today, we're not just going to talk about why you won't beat the market, but we're going to talk about the very concept of beating the market and why it is one of the most expensive ideas in the history of personal finance, and why this is the part I really want you to hear. Matching the market is not mediocrity. It is a triumph. It is the smartest, calmest, most emotionally resilient thing you can do with your money over a lifetime. But first, I need to tell you about the worst thing that ever happened to the individual investor, which was also simultaneously the best thing. In 1975, a man named Jack Bogle had what was in retrospect one of the most genuinely revolutionary ideas in the history of finance.

4:31He launched the first index fund available to individual investors, a fund that didn't try to pick winners or beat the market, but simply owned the entire market at the lowest possible cost, and then it would let time do the rest. Now, if you listen to the podcast from a few weeks back, we know this was a profoundly simple idea, but we also know that it was mocked immediately. As I referenced, Fidelity's Edward Johnson called it un-American. Competitors called it Bogle's folly. One investment manager described it as a sure path to mediocrity. The financial press couldn't quite believe that anyone would seriously suggest that the right answer was to just own everything and stop trying.

5:18And as we know now, looking back, or at least some of us know, Bogle was and continues to be right. Consistently, historically right. The data on this has been accumulating for over 50 years, and it points in one direction with the kind of unambiguous clarity that is genuinely rare in any field of human inquiry. So that was the best thing. And I know it's familiar. It might even feel repetitive to you. But I want to add some nuance, because in my mind, it was also the worst thing. Because the moment Bogle created an index fund to track the S &P 500, he accidentally, inadvertently, created a benchmark, a scoreboard, a standard against which every other investment, every other strategy, every other portfolio in America would henceforth be measured, whether that comparison was fair, relevant, or even coherent.

6:17Before the index fund, investors evaluated their portfolios the way you might evaluate a road trip. Did I get where I was going? Was the journey reasonable? Did I run out of gas? These were the only questions that mattered. After the index fund, investors evaluated their portfolios differently. Did I beat the S &P? Why didn't I beat the S &P? The S &P went up 12 % last year, but my portfolio only went up 9%. I am, or my advisor is, apparently a failure. The S &P 500 became America's smug older brother, the one who got straight A's without trying, never needed a tutor, and somehow got into a better college than you despite spending every weekend watching sports.

7:06And now, at every family gathering, like it or not, you're being compared to him by forces you cannot fully see or control. This is exactly what I mean by the tyranny of the benchmark. The index was created to liberate investors from the expensive losing game of active portfolio management. But by giving investors a clear number to measure themselves against, it accidentally created a new game, a game of comparison that is financially destructive, psychologically corrosive, and almost completely divorced from whether your actual financial life is going well. Let's say your portfolio is up 9 % in a year where inflation is 3%.

7:52You have grown your real wealth by 6%. You are, by any historical standard, doing extraordinarily well. Uh-oh, but the S &P went up 12%, and so you feel like you lost. You didn't lose. You're comparing yourself to something that wasn't designed to be your personal benchmark, and then you're experiencing feelings about that gap. This is a trap. It's very elegant. It's a very modern trap, and almost everyone falls into it. So here's the version of the question I'd like you to carry with you for the rest of this episode. What if the goal isn't to beat the market? What if the goal is to be the market, to own it, to mirror it, to let its long, messy, beautifully consistent trajectory carry you along for 40 years without all the fiddling, without all the fussing?

8:49Because breaking even with the market year after year for the rest of your investing life is not going to be a consolation prize. Trust me, it's going to be the prize itself. The actual prize that most investors, professional and retail alike, will never collect. Let me show you why. This episode is brought to you by Superpower. As many of you know, I've spent my entire adult life optimizing my financial health with a precision I have never once applied to my actual health. I track my portfolio, I know my expense ratios, but ask me what my cortisol levels are or whether my thyroid is functioning the way it should, no idea.

9:35My doctor told me I was fine at my last physical. I took his word for it and went home. That might have been about five years ago. And that is a strange way to manage the most important asset I own. Superpower treats your health the way a serious investor treats their portfolio, with real data, real tracking, and a real plan. A licensed professional comes to your home or you visit a lab nearby. One simple lab test gives you over 100 biomarkers, heart, liver, thyroid, hormones, metabolism, vitamins, environmental toxins, and your actual biological age. Not a snapshot, but a system that builds year after year so you can see real progress over time.

10:23Wealth means nothing without your health. This is where I'd start. Make this the year you stop guessing about your health with Superpower. For a limited time, our listeners get$20 off to unlock their new health intelligence. Head to superpower.com and use code Tyler for$20 off your membership. That's code Tyler. And after you sign up, they'll ask you how you heard about Superpower. do me a favor and tell them your money guide on the side sent you to support the show. That's superpower.com, code Tyler. This episode is brought to you by Facet. A recent study of over a thousand investors just dropped, and the numbers are uncomfortable enough that I want to walk through them quickly.

11:0997 % of people know they need a financial plan. Only 53 % have one. 76 % of those who do wish they had started sooner. And 66%, nearly two-thirds, lack confidence in achieving their long-term goals entirely. Here's what that gap costs. People with a financial plan worry significantly less about saving enough, report higher life satisfaction, and describe their outlook as hopeful and prepared. But here's the number that bothers me most. 53 % feel confident they'll save enough for retirement, and only 36 % know how. That 17-point gap between hoping and knowing is where most self-directed plans fall apart.

11:51The top reasons people don't have a plan, too expensive, don't have enough assets, all perception problems. None of them are real reasons to stay unplanned. If any of this resonates with you, you're not alone and facet may be your answer. Flat annual membership fee, no commissions, no minimums, one team of dedicated CFP professionals who build a plan around your actual life not just your portfolio. Because this isn't just about having a plan. It's about creating a life worth planning for. Visit facet.com slash Tyler to book an intro call today. That's facet.com slash Tyler. Facet is an SEC registered investment advisor.

12:32This is not advice. All opinions are my own and not a guarantee of a similar outcome. I'm not a member of facet. I have an incentive to endorse facet as I have an ongoing fee-based contract for cash compensation, as well as a percentage of equity in FACET based on this endorsement. The study was conducted by Morgan Stanley in July 2025. Section 1. Why beating the market defies logic. I want to start with a thought experiment. Suppose I offer you a deal. You hand me$100 today, and in exchange, I will give you, on average,$7 a year. Maybe a little more, maybe a little less, depending on what the economy decides to do on any given day.

13:12But over time, on average, 7 % of the principle. You don't have to work for it. You don't have to monitor it. You don't even have to think about it. All I need is for you to be patient. In finance, this is considered a remarkable bargain. In any other area of life, it would feel like a scam so good you'd be too embarrassed to tell your friends about it. And yet, instead of celebrating that 7 % as the miracle it actually is, our first instinct is to wonder if we can get eight or nine or maybe something a little flashier, something that could be featured in Forbes under a headline like how I turned$100 into 47 ,000 while sitting in a sauna and day trading Solana.

13:55That's the psychology of the modern investor. We are offered something historically generous, absurdly convenient, and our first instinct is to wonder if it is somehow not enough. This idea that your investments shouldn't just grow, but should outperform is not ancient wisdom. It is not particularly wise at all. It is mostly a byproduct of marketing, of benchmarks, and of a financial media ecosystem that exists to generate content. And content requires drama, and drama requires the possibility of, wait for it, winning and losing. That's why the benchmark was called un-American, because you just became average.

14:45The earliest index funds weren't designed to be scored like a football game. They were just reference points, instruments to help investors understand what the broad market was doing, not something to beat. But once we started comparing everything to the S &P or the Dow or the NASDAQ, we rewrote the entire goal of investing. It wasn't enough to just grow your money. Now you had to win. And this is where it all starts to unravel. Because if the market is a composite of everyone's best guesses, the collective intelligence of economists, analysts, algorithms, and investors from around the globe, then beating it isn't just hard, it is mathematically, let's say, rare.

15:31To beat the market, someone else must underperform. For every person who gets above average returns, someone else must get below average returns. That is not a policy position. It's basic arithmetic. And if everyone is trying to outperform simultaneously, you're not betting against the market. You are the market. Every trade you make, every prediction you act on, every hunch you follow becomes part of the price mechanism that sets the very standard you're trying to outrun. It's like entering a spelling bee where everyone writes the dictionary as they go. The irony is rich. Simply matching the market puts you ahead of most investors.

16:12More than 80%, we know this, of actively managed funds run by professional investors with resources, infrastructure, and teams of analysts underperform the benchmark over long periods. Individual investors do even worse than that, Not because they're stupid, but because they're human. They get anxious. They chase trends. They try to time entries and exits. And in doing so, they systematically subtract from the returns they were trying to beat. Yet, for some reason, we keep playing the same game. Eyes locked on the S &P like it's a personal nemesis. And here's the other version of this problem that nobody talks about.

16:50Even if you have a perfectly designed portfolio, international exposure, bonds, real estate, cash position, you will still find yourself feeling bad when the S &P goes up 12 % and your diversified portfolio goes up 9%. But, and I mentioned this about a year ago, but I haven't since, so it's worth the reminder, that is not a fair comparison. You can't do that. That is comparing a fruit salad to an apple and feeling like a failure because your salad doesn't look like the thing you picked off the tree. The truth is that most diversified portfolios are not designed to beat a 100 % stock index. They're designed to survive the volatility.

17:36They're designed to grow steadily while protecting you from the catastrophic years that wipe out people who were only holding one things. Bonds, they can help support you. International exposure, that can be some basic insurance for domestic issues. And cash is the thing that lets you sleep at night and pay the plumber when your pipes explode at 2 a.m., which we all know if they haven't yet, they will. And yet we struggle to accept this because beating the market has become this proxy for intelligence, for success, for identity. We don't want to be average. We want to be exceptional. We want to feel like we're smarter than the crowd, even though the crowd in aggregate is almost always smarter than we are individually as it pertains to the market.

18:24So here's the radical thought I want to plant before we move on. What if average in and of itself is the win? What if the S &P return, captured cheaply and held patiently, is not the floor of acceptable performance, but the very ceiling of achievable performance for most investors over most time horizons? Because that is what the data continues to show. And the best part, you don't have to do anything special to get it. You just have to stop trying to be special. Number two, you're up against giants. Let's pretend just for a moment that you still believe you can beat the market. Maybe you've convinced yourself that you have a gut instinct or a knack for spotting trends or some special talent for parsing earnings reports in a way that Bloomberg's army of analysts somehow missed.

19:19You got a feeling, a thesis, an edge. You're one of the people who goes to the casino, and don't worry, you've got a system. Okay, fair enough. I'll play along. But if you're going to play this game, if you're really going to try to outmaneuver one of the most efficient systems in human history, you should know who you're actually up against. And I don't mean your cousin Doug, who brags about his Coinbase gains at Thanksgiving and still believes Dogecoin is early. I mean the actual players, the institutions, the hedge funds, the algorithmic traders, the pension funds with seven floors of staff, and a risk model for every conceivable weather pattern and presidential tweet.

20:03These are firms that spend millions of dollars per year not on the investments themselves, but on gaining speed, information, and access over you. They hire physicists to design trading algorithms that can adjust strategies in microseconds. They lay fiber optic cables under the Atlantic Ocean so their trades can reach London three milliseconds faster than their competitors. They install microwave towers between Chicago and New York because the curvature of the earth makes light travel faster through air than through glass, and three milliseconds is worth millions of dollars in the right market.

20:43None of that is a metaphor. These are actual strategies deployed by actual firms right now. Meanwhile, you're on your couch in sweatpants. You're watching CNBC with the sound off while half-heartedly reading an article about AI stocks on your phone, which is also alerting you that your DoorDash order is eight minutes late. But you've got a feeling about semiconductors. It's not a fair fight. It was never a fair fight. And the sooner you make peace with this, the sooner you can redirect your energy towards something you can actually control, like keeping costs down and investing in broad index funds.

21:20Because even if you are smart, and let's be genuinely generous and assume you are dialed in, even if you are well-read, disciplined, and have access to real-time news and financial statements, you're still fundamentally disadvantaged because you're not operating in a vacuum. Every single piece of public information you act on has already been acted on. Every intuition you have about a stock being undervalued is, statistically speaking, a hunch that hundreds of professionals have already priced in, dissected, and arbitraged into irrelevance. So it's not that you're wrong, it's that you're late, or at the very least, ever so slightly later.

22:01Markets move not when news breaks, but when the interpretation of that news shifts the expectations of people with real money. And those people don't spend their mornings on Reddit. They're rarely tweeting. They're not waiting for the weekend to do some research. They are placing bets in real time, armed with tools you don't have and incentives you don't understand. And here's the detail that I find most clarifying. Those giants don't even win reliably. The majority of actively managed hedge funds underperform a basic market index, even with the billion-dollar budgets and Olympians doing their math.

22:45The edge is so slim, and the cost of chasing it so high that it frequently cancels itself out. You're trying to outrun a group of professionals who cannot and do not reliably outrun each other, which raises a very honest question. If these institutions with their microwave towers, their fiber optic cables, and their PhDs in physics are mostly spinning their wheels, trying to stay even with an index net fees, what exactly do you think you're going to find? A secret? A signal no one else has seen? A pattern that thousands of algorithms have missed, but that became visible to you on a Wednesday afternoon between conference calls?

23:25And trust me, I speak from experience and I preach with empathy because I understand the appeal. I genuinely do. Remember that summer that I spent reading Alpha Wolf. I know what it feels like to believe you are the exception. It is an extremely pleasant feeling right up until it isn't. Because there are no secret handshakes left. There are no magic stock tips that haven't already been dissected and digested into the price. What remains, more often than not, is a boatload of noise, a whisper of advantage that vanishes the moment it appears. By the time you buy, it's gone. By the time you react, you are the exit liquidity for someone else's better strategy.

24:10This is a competition you will not win, and the scoreboard, I promise you, is already set against you. This episode is brought to you by Copilot Money. I have a group chat with four of my closest friends from my finance days. Between us, decades of managing other people's money, multiple licenses, and an embarrassing amount of opinions about actively managed funds. These are not people who download budgeting apps. These are people who tend to mock budgeting apps. And yet, every single one of them uses co-pilot money. The group text now contains, between bond market commentary and bills game updates, sincere love letters to a finance app.

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27:44If it weren't bad enough that you're competing against supercomputers and former chess prodigies with fiber optic cables under the ocean, the real reason you will never beat the market is this. Even if you could somehow keep up with them, even if you could pick the right stocks, interpret the data correctly, time the trades, and avoid the fees, you would still lose. Why? Because you are a human being. And human beings, despite their extraordinary capacity for language and love and inventing the air fryer, are statistically terrible investors. You might believe you're the exception. You are logical.

28:24You are thoughtful. You're rational. You might even take pride in how unemotional you are about money as if you're some kind of spreadsheet with a slight pulse. But behavioral economists, and also frankly your brokerage history, would like to politely disagree. We are, by design, riddled with cognitive biases. Not as a moral failing, as a survival feature. Your brain did not evolve to invest. It evolved to keep you alive in a forest when a rustle in the bushes might be a snake or a predator or worse, your neighbor Todd telling you about a new stock. Which is to say, you're wired to react quickly, not think patiently.

29:05You are built to fear loss more than you value gain. And you are exceptionally talented at constructing elaborate post hoc narratives to justify decisions that you already made on impulse. else, let's quickly and briefly discover a few of our biggest biases that make us terrible investors. We'll start with the classic. And in my 20s and 30s, I was so guilty of this one, it's not even funny. Overconfidence. The same instinct that leads 80 % of people to believe they're above average drivers, which is mathematically adorable. I love that statistic. It is the most human statistic in existence. Also leads most retail investors to believe they're above average stock pickers.