Why Calling the S&P 500 “Average” Is a Misconception — You Don’t Want to Beat the Average, You Want to Own the Best

When people talk about investing, the S&P 500 almost always comes up as the benchmark — the so-called “average return” of the market.  It’s the yardstick by which many investors measure their success.

But here’s the truth: calling the S&P 500 “average” is misleading.  And misunderstanding this can lead to flawed strategies and unrealistic expectations.

Let’s explore why this matters — and why your goal shouldn’t be to beat the average, but to own a piece of the best companies in America.

The Myth of the “Average” Market Return

The S&P 500 isn’t a random mix of companies.  It’s a carefully selected list of the 500 most valuable publicly traded companies in the U.S., constantly updated to reflect market leadership.

Here’s how it works:

• Struggling companies get kicked out of the index.

• Fast-growing, high-performing companies take their place.

It’s like a sports league where underperforming teams are eliminated each season, while only championship-level teams remain.

Result:  Over time, the S&P 500 reflects survivors — the strongest, most competitive businesses — not the true average of all companies.

When you compare your portfolio to the S&P 500, you’re really competing against the market’s all-star team, not the league average.

John Bogle: The Visionary Behind Index Funds

To truly understand why the S&P 500 matters, we need to talk about John C. Bogle, founder of Vanguard and the pioneer of index investing.

Back in the 1970s, Bogle had a radical idea:  Instead of trying to beat the market, own the entire market through a low-cost fund.

“Don’t look for the needle in the haystack. Just buy the haystack.”— John Bogle

His philosophy was built on three key truths:

• Most investors fail to beat the market consistently.

• High fees and constant trading destroy returns.

• Owning a broad, low-cost index fund is the simplest path to wealth.

Bogle’s invention of the first index fund changed Wall Street forever.  For the first time, everyday investors had access to a strategy once reserved for elite institutions.

“The stock market is a giant distraction to the business of investing.”— John Bogle

Warren Buffett’s Simple Advice

Warren Buffett, one of the greatest investors of all time, strongly agrees with Bogle’s philosophy.

In his 2013 annual letter, Buffett revealed that he had instructed the trustee handling his family’s inheritance to follow one simple plan:

“My advice to the trustee couldn’t be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund.”— Warren Buffett

Why?  Because investing in the S&P 500 isn’t just owning an index.  It’s owning shares of America’s most successful, innovative companies, like Apple, Microsoft, Amazon, and Johnson & Johnson.

Buffett’s advice is clear:  You don’t need to outsmart Wall Street — just own the best businesses at the lowest cost possible, and let time compound your wealth.

Popular S&P 500 Funds You Can Invest in Today

If you’re ready to own a piece of the S&P 500, you don’t need a financial advisor or a complicated strategy.  You can start with a simple brokerage account and buy a low-cost S&P 500 ETF or mutual fund.

Here are some of the most popular options:

• VOO — Vanguard S&P 500 ETF: This is an ETF with a very low expense ratio of 0.03%, making it perfect for long-term investors seeking extremely low costs.

• SPY — SPDR S&P 500 ETF: The first and most widely traded S&P 500 ETF. It has an expense ratio of 0.0945% and is known for its high liquidity.

• IVV — iShares Core S&P 500 ETF: Another excellent ETF option with a 0.03% expense ratio, offering similar performance to VOO.

• VFIAX — Vanguard 500 Index Fund: A mutual fund with an expense ratio of 0.04%, ideal for investors who prefer traditional mutual fund investing.

These funds track the S&P 500 almost exactly, giving you instant diversification across 500 companies with a single purchase.

Example:If you buyone share of VOO**, you own tiny pieces of Apple, Microsoft, Tesla, Google, and hundreds of other companies — instantly making you a co-owner of America’s top businesses.

This is how you join the team, instead of trying to beat it.

Why Beating the S&P 500 Is So Hard

Many new investors start with a dream: “I want to beat the market.”

Here’s what they don’t realize:

• The S&P 500 is already the result of natural selection.

• Every day, underperformers are removed, and winners are added.

• You’re competing against hedge funds, high-frequency traders, and Wall Street’s smartest analysts.

It’s like trying to play a casual game of basketball against NBA All-Stars… and being shocked when you lose.

Outperformance isn’t impossible — but it’s rare.

The Data: Why Most Active Managers Fail

SPIVA (S&P Indices Versus Active) publishes annual reports tracking active fund performance versus the S&P 500.

The results are brutal for active managers:

Over different time horizons, the percentage of actively managed large-cap funds that fail to beat the S&P 500 is strikingly high:

• 1 year: Around 65% of funds underperform.

• 3 years: About 85% underperform.

• 5 years: Roughly 76% underperform.

• 10 years: Close to 84% underperform.

• 15 years: Nearly 89% underperform.

• 20+ years: An overwhelming 92–94% underperform.

Over the long run, 9 out of 10 professional fund managers fail to beat the S&P 500, especially after fees and taxes.

This is why Bogle and Buffett both argue that simply buying and holding a low-cost S&P 500 fund is the smartest move for most people.

Stop Chasing Bragging Rights — Focus on Freedom

Many investors get caught up in the thrill of trying to “beat the market.”  But this often leads to:

• Over-trading and higher costs

• Emotional, FOMO-driven decisions

• Taking on unnecessary risks

Instead, focus on what truly matters: achieving financial freedom.

Your goal shouldn’t be to post about beating the S&P 500 on social media.  It should be to build a portfolio that supports your dream life, such as:

• Having the option to work part-time earlier in life

• Buying a home without financial stress

• Funding your children’s education

• Building a $1M portfolio that generates passive income

• Living a life where work is optional, not required

“The miracle of compounding returns is overwhelmed by the tyranny of compounding costs.”— John Bogle

Three Lessons You Can Apply From the S&P 500

The S&P 500 can teach you how to structure your own investments.

1. Diversification Is Non-Negotiable

The S&P 500 spreads risk across 500 companies in multiple sectors.  You should do the same — don’t bet everything on a single company or industry.

“The greatest enemy of a good plan is the dream of a perfect plan.”— John Bogle

2. Cut Losers, Let Winners Run

The index automatically removes underperformers and adds leaders.  As an individual investor, avoid holding on to losers out of hope or nostalgia.

“Time is your friend; impulse is your enemy.”— John Bogle

3. Be Consistent and Patient

The S&P 500 grows steadily because of its methodical approach.  Your investing should do the same: small, regular contributions held for decades.

“Stay the course.”— John Bogle

Start Owning the Best Today

You don’t need to beat the S&P 500 to win.  You just need to own a piece of it.

With ETFs like VOO, SPY, and IVV, you can become a part-owner of Apple, Microsoft, Amazon, Tesla, and hundreds of other companies — all with a single investment.

The best time to start was yesterday.  The second-best time is today.

Open a brokerage account, buy a low-cost S&P 500 fund, and take the first step toward financial independence.

This isn’t about gambling or speculation — it’s about building lasting wealth, brick by brick.

Final Reflection: Define Your Benchmark

The S&P 500 is a great tool for wealth building, but it shouldn’t define your personal success.

Ask yourself:

“What does financial freedom mean to me?”

Maybe it’s:

• Retiring early and traveling the world

• Funding family experiences without financial stress

• Building generational wealth for your children

• Buying back your time so you can live life on your terms

Once you define your personal benchmark, you’ll stop obsessing about “beating the market” and start creating a life you love.

As Buffett and Bogle both remind us:  Wealth isn’t built by outsmarting everyone else.  It’s built by minimizing costs, staying invested, and letting compounding do the heavy lifting.

Stay the course.  Own the best.  Let time do the rest.

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