Paying someone to beat the market sounds reasonable. The hard part is how rarely it works.
Only about 13% of active U.S. large-cap funds survived and beat their average passive competitor during the 10 years through June 2026.
That doesn’t mean skilled fund managers don’t exist. It means finding one before the winning decade begins is considerably harder than identifying the winner afterward. For most of my long-term money, I’d make the market do the work instead.
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The odds get worse
One good year can make active management look convincing. Stretch the comparison to a decade and the success rate drops to 13%. Fees help explain why. So an active manager doesn’t simply need to pick good stocks. The fund needs to outperform by enough to cover management expenses, trading costs, and mistakes.
In fact, the cheapest active funds performed better than expensive ones over the long term. Even then, only 22% of the cheapest group of U.S. large-cap funds beat passive competitors over 10 years. Among the most expensive group, the success rate was just 9%. That’s a lot of research to end up behind an index fund.
Buy the index
My alternative is the Vanguard S&P 500 Index ETF (TSX: VFV). VFV tracks the S&P 500, giving Canadian investors exposure to roughly 500 large U.S. companies through one purchase. Its management expense ratio (MER) is 0.08%.
That means $10,000 invested carries roughly $8 of annual fund expenses at the current MER, although the actual dollar amount changes with the value of the investment. VFV’s underlying strategy remains a strong core holding because of its low costs, low turnover, broad large-cap exposure, and simple market-cap-weighted structure.
Nobody needs to guess which company will become America’s next giant. As businesses grow, their weight in the index increases. Companies that shrink become less important. That’s one of the attractions of understanding how ETFs work. The strategy doesn’t depend on one manager continuing to make the right call.
There’s a catch
Passive investing doesn’t remove risk. VFV is entirely invested in U.S. equities. It doesn’t provide direct Canadian, European, Japanese, or emerging-market diversification. It’s also more concentrated than “500 stocks” might suggest. The 10 largest companies account for close to 38% of the portfolio.
That concentration has helped when mega-cap technology stocks rise. It can work the other way too. Market-cap weighting can leave investors with their largest exposure to the companies whose prices have already risen the most.
VFV isn’t currency hedged. Canadian investors can benefit when the U.S. dollar strengthens against the loonie and lose some return when the reverse happens. Those aren’t reasons I’d avoid it. Just reasons I wouldn’t mistake one excellent ETF for an entire global portfolio.
Keep costs working for you
VFV closed recently at about $193. I wouldn’t spend much time trying to predict whether $190, $180, or $200 will prove the perfect entry price over several decades. I’d care more about buying consistently, keeping costs low, and letting compound growth work for as many years as possible.
Investors can pair VFV with Canadian and international holdings if they want broader geographic diversification. The important part is knowing why each additional investment is there.
Bottom line
Active managers can beat an index. The historical odds suggest most won’t do it consistently enough for investors to identify them easily in advance.
When only 13% of active U.S. large-cap funds survived and beat passive competitors over the last decade, I don’t feel much pressure to find the next star manager.
VFV gives me the index for a 0.08% MER. Sometimes the simplest way to beat most stock funds is to stop trying to beat the market at all.
