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How (Not) to Compete with the Investment Professionals

Updated: Feb 7, 2023

Investing is not a competition

Question: With so many well-educated and experienced professional investors working on Bay Street and Wall Street, how is the ordinary person expected to compete in the investment arena? With all of their expertise, how can we do better?

Answer: You don’t have to compete. You shouldn’t compete.

For you and I, investing isn’t a competition. Rather it should be simple and boring.

Duking it out

Let the investing professionals duke it out amongst themselves. I’m talking about the mutual fund managers, pension fund managers and hedge fund managers – those who invest other people’s money. It’s their fiduciary responsibility to make the best investment decisions they can and competition for clients is fierce. In the investment management arena, performance is everything.

To generate the best investment returns, portfolio managers have to make predictions about where markets, interest rates and the economy are going and identify the best companies to invest it. They spend hours each day doing this and have a ton of resources to help them. It’s a lot of blood, sweat and tears – I had a front-row seat for 15 years when I worked in money management and I can confirm that it’s hard work.

The goal of professional investors is to try and outperform the market. This means that the returns generated by the fund they manage have to be higher than what the overall market earns* – because why would you pay someone to invest your money for you if they can’t do better than you could by owning an index fund that mirrors the market?

Know your investment goals

Regular investors like you and I though don’t need to outperform the market. We don’t need to compete with anyone. Our goal is to have our investments earn a rate of return over the long run that allows us to save enough for our retirement. If you have a retirement plan and that plan assumes that you will earn 6% on average per year from your portfolio, then that’s your goal: 6%.

The long-term return of the North American stock markets is about 9-10% per year. This is a great return, especially if you have a long time horizon. And if you have a mix of stocks and bonds that generate a 6% return per year, that’s good enough.

The desire to do better

Some people like to chase returns, trying to do better than that. I understand the human desire to make more money, but is taking on additional risk, spending time researching and monitoring, and feeling stressed worth it? Watching your investment account gyrate wildly is anxiety-producing and I guarantee it will take up more of your brain space than you have to spare. Who among us needs more stress? Is it worth it? I think not.

Now, if you want to give active management (a.k.a stock picking) a go, there’s nothing wrong with that. But think seriously about trying to get fancy with all of your money – that’s a big risk you’re taking on. Choosing individual stocks requires work and doing it well is really hard (even for the pros). Instead, consider allocating most (80-90%) of your money to a short list of passively-managed exchange-traded funds and then leaving a little bit to experiment with. Call it your “crystal ball account” and have fun with it.

Stop worry about all of those professionals who know so much more than you. None of that matters for us regular investors. Just aim for a modest return that will allow you to save enough for retirement. Good enough is great.


*This is over-simplified, as some funds have a different benchmark against which their performance is measured, but my comment is generally true.


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