Investing to beat the market is a sucker’s bet. Think about the professionals who spend 40, 50, 60 hours per week obtaining information and analyzing it – are you going to do better than they can? Fewer than 10 percent of them can beat the market for more than a couple years in a row. There are dozens of studies that prove this point.
Basically, you should just find the lowest-cost mutual funds or Exchange-Traded Funds (look up that term on Helium), and stick with them.
And here’s another thing to consider. Let’s say you want to “beat the market,” but the market loses 5% that year. So you lose 2%. Is that a win?
This is why investment professionals recommend that you have a diversified portfolio. If the market drops in 2007, then your bonds will likely gain some ground and somewhat balance out the losses in stocks.
But if you are determined to try to beat the market, you should look at what individual companies or general market sectors (like energy, real estate, or consumer goods) has not done well for the past year or two. Think about whether any of those struggling stocks or sectors is ready for a rebound. That’s where your opportunity lies. Anything that is “hot” and has done well for a year or two has already made its big gains! If you are getting into it now, you are too late. You need to take a guess – and that’s what it is, a guess – on what will turn around in the fairly near future.
One more warning. Don’t go near the “funds of funds” that offer strategies like hedge funds. These are the true sucker’s bet of the moment. Your expenses are immense, and the inefficiencies in the market that some hedge funds could exploit have been exploited. There’s no more easy money on the table in that sector.