Beating the S&P 500

You should fire your advisor if they are trying to beat the S&P 500.... An astute reader may realize this also means your advisor should fire you as a client if you expect them to beat the S&P 500.

I can hear the objections start immediately…

• “You just don’t want to be accountable to an objective standard.”

• “You just say that because you don’t actually add value to clients.”

The list could continue. However, before you stop reading, let’s consider another perspective.

Why the S&P 500?

First, why do we use the S&P 500 as a benchmark? Why not the Dow Jones Industrial Average or the NASDAQ or one of the thousands of other indices?

The S&P 500 tracks the performance of 500 large U.S. companies. It doesn’t include bonds or fixed income. And it does not include the other companies listed on the New York Stock

Exchange (there are about 2,700 other companies listed on the NYSE). So, using it as a benchmark for your entire investment strategy ignores diversification. It is also an arbitrary benchmark that is usually picked because it is popular, not because it is the best measuring stick.

But the lack of diversification gets worse. The S&P 500 is a capitalization-weighted index.

This means the largest companies (Apple, Amazon, Microsoft) have an outsized influence.

It’s like giving these companies 100 votes while smaller companies only get 1.

You could argue that it's better to just invest in the largest companies. They must have a proven track record and are so big they surely aren't going anywhere. I agree that this appears to be the case, but history teaches us a different lesson. Remember Enron? Enron was worth over $60 billion before going bankrupt in an epic implosion.

Large doesn't mean safe.

The Misaligned Incentives

The next problem with judging an advisor on whether they can beat the S&P 500 (or any index) is it misaligns the advisor/client incentives. The advisor is suddenly incentivized to concentrate investments in fewer stocks to try to get bigger returns. This contradicts the fundamental principles of risk management and strategic diversification. A real financial advisor builds a portfolio that aligns with your financial goals, not just one that chases performance.

Winning the Wrong Game

Nevertheless, let’s assume your advisor is able to outperform the S&P 500 by 2% every year—but you still run out of money by age 80. Did you win? Did you achieve your actual goals? I would guess not since i have yet to meet anyone who says their goal is to run out of money before they die.

Most investors who fixate on "beating the market" are actually after something else: more money. But more money isn’t a goal—it’s a tool. The real question is, what are you trying to accomplish with your money?

A real financial planner doesn’t just manage investments. They help you clarify your values, align your capital with those values, and create a plan that maximizes your life—not just your portfolio’s return.

The Real Question: What Are You Looking For?

If you want an advisor who focuses on beating an index, what you’re really looking for is a hedge fund manager, not a real financial planner.

A hedge fund manager is in the business of taking big bets to chase big returns. A financial planner is in the business of helping you achieve financial independence, navigate major life decisions, and avoid unnecessary risks.

Working with a real financial planner should be transformative. Chasing returns with a hedge fund manager is just a rollercoaster ride.

So, what do you actually want: a financial planner who aligns your money with your life—or someone who just swings for the fences? The answer to that question determines who you should hire (or fire).

Let's Work Together!