Here’s Why Investors Don’t Need To Beat the Market To Be Rich, According to Humphrey Yang
Written by
David Nadelle
Edited by
Zuri Anderson
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If besting the market was impossible, the market wouldn’t be flooded with investors trying every trick in the book to beat it. Active trading creates the market, but outperforming it with any consistency is extremely difficult.
Former advisor-turned-“fin-fluencer” Humphrey Yang would agree with the above. But for Yang, taking on the stock market is a pointless battle for people who want to get rich. The popular social media magnate, who has 1.83 million YouTube subscribers and 3.4 million TikTok followers, is a sober voice in an often chaotic financial world.
In a recent YouTube video, Yang exposed the realities of trying to beat the market and what you should do with your money instead.
Good Things Come to Those Who Wait
Over time, even average market returns can grow your wealth. According to The Motley Fool, the S&P 500 has returned 12.2% over the past decade.
So, if you invest consistently in index funds (rather than selecting hedge funds or a variety of random stocks) and let compounding interest to do its work, your modest savings can turn into significant wealth.
For example, using Investor.gov’s interest calculator, a $10,000 investment can grow to $76,122.55 over 30 years. This might seem like small potatoes over three decades, but this with a conservative 7% return and without contributing an additional cent over the years.
You’re Your Own Worst Enemy
“So, if that’s the case, where elite hedge funds can’t beat a simple index fund, why do people keep trying?” Yang asked. The answer has to do with a psychological belief, or a cognitive bias, that “we can be the exception” despite performance data to the contrary.
In his “Stop Trying to Beat the Market (Do This Instead)” YouTube video, Yang explained the disposition effect trap (a tendency for investors to sell off winning stocks too early and hold on to losing holdings too long, especially in times of economic turmoil), overconfidence bias and the role that human emotions like joy, fear and anger play in driving the market.
We can’t get out of our own way when it comes to investing because we have trouble putting aside doubts, anxieties and our egos or, as financial analyst Benjamin Graham famously said, “The investor’s chief problem — even his worst enemy — is likely to be himself.”
What Should You Do Instead?
The most fiercely competitive, in-the-know market hustlers have trouble beating the market, let alone breaking even. So, why would the average investor think they can, and what should they do instead?
The market has consistently produced wealth to its investors, and when we now know that returns have been particularly favorable over the last decade, Yang’s advice is so “embrace simplicity.” Looking at the period from 1900 to now, despite “every single [financial] catastrophe that you can imagine,” the S&P Composite Index has averaged a return of 9.98%, according to Yang.
Sticking to a simple strategy that has proven to build wealth doesn’t have to be boring. As Yang said, you can create a portfolio with ETFs like Vanguard’s Total Stock Market (VTI) or S&P 500 (VOO), or diversify it slightly by combining a U.S. index fund with an international index fund and a bond market fund, for example.
Or you can mix things up more by directing money into a 401(k) or Roth IRA retirement account or investing in alternatives assets like commodities or real estate. If you can’t resist the urge to play the market, Yang recommends sticking to a small number of well-established companies. However, the key is to simplify, not complicate.
“When you stop trying to beat the market, you actually have more time to yourself because you’re probably not watching Jim Cramer screaming about different buy or sell signals,” said Yang. “You’re not checking your portfolio every five minutes. And you know, you’re not being emotional with investing because you hopefully aren’t even paying attention.”
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