Think you can beat the stock market? According to the latest MagnifyMoney survey of more than 1,000 Americans with at least one investment account, 40% definitely think they can get a better return on their own investments than what they’d get from a broad index fund such as the S&P 500.
That percentage varies greatly, however, among men and women; Democrats and Republicans; and millennials, Generation Xers and baby boomers.
Some see investing as a game and are ready to play to win. Others tend to want to spend more time sitting on the bench. Here’s what we learned from our survey.
- Key findings
- Trying to beat the market is a gamble, our experts say
- More prefer passive investing over active investing
- More than 1 in 3 definitely agree they’re very competitive with investing
- Slightly more investors focus on maximizing long-term gains
- 40% of investors definitely think they can beat the stock market. That figure jumps to 53% of men (versus 19% of women), 54% of Republicans (versus 31% of Democrats) and 55% of millennials (versus 47% of Gen Xers and 16% of baby boomers).
- Millennial investors favor an active investing approach, meaning they’d rather hand-pick their investments and/or time stock purchases on their own. More than 3 in 10 (31%) millennials with investment accounts take this approach, compared with nearly 2 in 10 Gen Xers (19%) and baby boomers (19%).
- Men estimate their investing as “very competitive” at a rate triple that of women (46% versus 15%). On the other hand, 55% of women don’t think they’re very competitive when investing, while only 24% of men said the same.
- Men (40%) are more likely than women (17%) to treat investing in stocks as a game, while women (49%) treat it as a safer way to save money than men (33%).
- Just under a third of investors (32%) said they predominantly focus on maximizing long-term gains, even if it means short-term losses. However, a similar number (29%) instead focus on avoiding immediate losses at the expense of long-term gains.
Trying to beat the market is a gamble, our experts say
Investors believe there’s potential to get more out of the stock market than they put into it — or they wouldn’t invest. However, some believe they can “beat” the market, which — for our purposes — means getting a better return on your own investments than that of a broad index fund.
Since 1928, the S&P 500 has had an annual average return of 7.7%
Broad index funds are traditionally popular because they’re easy to understand, offer a simple way to diversify assets and come with lower costs and risks. What they don’t come with, though, is the potentially big payoffs that can occasionally accompany individual stock purchases.
Trying to beat the market is a gamble, and some are more inclined to take their chances than others. At least 40% of respondents said they definitely think it’s possible to beat the stock market, and another 36% think it’s somewhat possible. That’s more than three-fourths of investors who share either sentiment, combined.
While that confidence is admiral, in general, experts said trying to beat the market isn’t the best move.
“It is certainly interesting, and a bit disheartening, to hear that so many investors think they can beat the stock market,” said Sarah Berger, millennial personal finance columnist at MagnifyMoney. “Even actively managed investment funds tend to historically underperform when compared to popular market benchmarks. If the investment pros can’t even outperform the market, that should be a strong sign that you shouldn’t try to beat it, either.”
So, why do some think their choices are better than those in an index fund? “People who think they can beat the stock market can be acting on feelings of overconfidence or on self-attribution bias, which is when you chalk up your successful outcomes to your own actions and your negative outcomes to external factors,” Berger said.
Those feelings seem to be driven in part by life experience, personal circumstances and personality. Breaking down respondents further:
- Men (53%) are much more likely to definitely believe they can beat the stock market than women (19%).
- The same percentage of women (41%) believe it’s somewhat possible to beat the market and not possible to beat it, while 33% of men think it’s somewhat possible, and only 14% don’t believe it’s possible.
Younger generations are more likely to believe in their abilities than older generations. In fact, 55% of millennials think they can beat the stock market, versus 47% of Gen Xers and 16% of baby boomers.
Baby boomers are the most likely to think it’s somewhat possible to beat the market (44%), followed by:
- 34% of millennials
- 27% of Gen Xers
Baby boomers are also the biggest doubters, with 40% stating they don’t think it’s possible to beat the market. Only 26% of Gen Xers and 11% of millennials reported the same.
Meanwhile, Republicans are most likely to believe their risks can pay off, with 54% stating they think it’s definitely possible to beat the market. Democrats (31%) are less likely to hold this belief.
More than 3 in 10 (31%) Democrats and nearly 2 in 10 (18%) Republicans said they don’t think it can be beat.
More prefer passive investing over active investing
Even though they may believe they can beat the stock market, most people (40%) still prefer to invest in proven index funds, which is known as passive investing. Just a quarter of people (25%) said they prefer to hand-pick their own stocks (active investing), and 35% prefer a combination of both passive and active investing.
More men than women prefer both passive investing (44% versus 34%) and active investing (28% versus 21%). Meanwhile, 46% of women prefer a combination of both types of investing, while only 29% of men do.
Millennials (31%) are the most likely to prefer active investing, compared with:
- 19% of baby boomers
- 19% of Gen Xers
Baby boomers (46%) are the most likely to favor a combined approach of both passive and active investing, compared with:
- 32% of Gen Xers
- 28% of millenials
Republicans (47%) are the most likely to prefer passive investing, compared with 39% of Democrats. The percentage of those who prefer active investing is similar across party lines: 25% of Democrats and 23% of Republicans.
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More than 1 in 3 definitely agree they’re very competitive with investing
Men, millennials and Republicans were the most likely to agree that they’re very competitive when it comes to investing. Those who somewhat agreed with it were split fairly evenly across gender, age and political affiliation, while higher percentages of women, baby boomers and Democrats disagreed with the statement.
- 34% of investors definitely agree that they’re very competitive when it comes to investing. An additional 30% somewhat agree with that statement.
- 47% of millennials and 43% of Gen Xers definitely agree that they’re very competitive about investing, while only 12% of baby boomers said the same. In fact, 62% of baby boomer investors said they’re not at all competitive.
- Republicans self-reported themselves as competitive investors at higher rates than those who identify as Democrats: 50% versus 26%. On the other hand, 42% of Democrats said they’re not at all competitive, versus 25% of Republicans.
About 3 in 10 treat investing as a game
Is investing a game or a safe way to save money? In general, most believe it’s a safe way to save money (39%), though nearly a third of people (31%) see it as a game. Another 30% see it as a little of both.
Men are more than twice as likely to see investing as a game than women (40% versus 17%), and millennials were more than three times as likely to see it that way than baby boomers (42% versus 13%). As for political affiliation, Republicans (41%) are more likely to see it as a game than Democrats (24%).
It also seems that those with more education are more likely to treat stocks as a game, with 38% of those with a bachelor’s degree or higher stating they do so, while only 29% of those who have no college education and 14% of those with some reported the same. The survey also found that those with no college education (47%) and those with some (44%) are more likely to treat it as a safe way to save money than those with a bachelor’s degree or higher (36%).
Slightly more investors focus on maximizing long-term gains
While more investors said they’re willing to focus on maximizing their long-term gains even if it means short-term losses, the percentage (32%) isn’t overwhelming. Meanwhile, 29% said they’re willing to avoid immediate losses, even if it means sacrificing long-term gains.
- Men are twice as likely as women to focus on avoiding immediate losses (36% versus 18%) while far more women (22% versus 9%) said they don’t think about either avoiding immediate losses or maximizing long-term gains at the expense of the other.
- Nearly a quarter of baby boomer investors (24%) said they don’t really think about avoiding immediate losses or maximizing long-term gains. Only 12% of Gen X and 7% of millennial investors said the same.
- Republicans (38%) are more likely to focus on avoiding immediate losses than Democrats (25%).
In general, Berger said that while there are no guarantees when it comes to the stock market, investors should have confidence that the stock market, historically, has always recovered from downturns.
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“Having confidence that the stock market will eventually generate decent returns is critical,” she said. “If you have no confidence in the market, you may be tempted to pull out your money when you see your portfolio balance dip. If you do that, you are missing out on compounding returns and not giving your portfolio time to rebound. It’s all about striking the balance between feeling confident enough that the stock market will eventually generate returns, without getting too cocky and thinking you’re able to beat it.”
MagnifyMoney commissioned Qualtrics to conduct an online survey of 1,066 Americans with at least one investment account. The survey was fielded Oct. 9-13, 2020.
Generations are defined as the following ages:
- Millennial: 24 to 39
- Generation X: 40 to 54
- Baby boomer: 55 to 74
The survey also included responses from members of Generation Z (ages 18 to 23) and the silent generation (ages 75 and older). Due to the low sample size among both age groups, their responses were factored into the overall percentages but excluded from the generational breakdowns.