Investors often ask a simple question:

“Did my investments beat the S&P 500?”

It sounds reasonable. The S&P 500 is widely reported, easy to follow and commonly treated as a shorthand for “the market.” But that question can be misleading—especially for someone approaching retirement or already withdrawing money from a portfolio.

A benchmark is useful only when it matches the assignment.

Comparing every fund, manager or retirement portfolio to the S&P 500 is like judging every vehicle by its top speed. Speed matters, but it tells you very little about safety, comfort, fuel efficiency, cargo capacity or whether the vehicle can reliably get you where you need to go.

Before deciding whether someone is doing a good job, it helps to understand the difference between a fund manager and a financial advisor.

What Does a Fund Manager Do?

A fund manager, sometimes called a portfolio manager, is responsible for managing a specific pool of investments.

The fund usually has a defined objective and set of rules. It might invest in:

• Large U.S. companies
• Small or midsized companies
• International stocks
• Government or corporate bonds
• Dividend-paying stocks
• A combination of stocks and bonds
• A particular industry or investment style

The fund manager makes day-to-day decisions about which investments to buy, hold and sell while staying within the fund’s stated objectives and policies. The fund’s prospectus generally identifies its investment adviser, portfolio managers, strategy, risks and expenses.

A fund manager’s responsibility is therefore primarily to the fund’s investment mandate.

For example, a conservative balanced-fund manager may intentionally hold bonds, cash and defensive stocks. That manager is not necessarily trying to produce the highest possible return in a strong stock market. The manager may instead be trying to generate a reasonable return while limiting volatility and large losses.

What Does a Financial Advisor Do?

A financial advisor generally looks beyond a single fund.

Depending on the advisor’s services, the advisor may help a client:

• Establish financial and retirement goals
• Determine an appropriate mix of investments
• Evaluate risk tolerance and time horizon
• Select and monitor funds or investment strategies
• Plan retirement withdrawals
• Coordinate investment decisions with tax, income and estate considerations
• Adjust the plan as the client’s life changes

Investment advisers commonly provide ongoing advice about buying, selling and holding investments, monitor performance and evaluate whether the portfolio remains aligned with the client’s objectives. They may also provide asset-allocation guidance and financial-planning services.

The distinction is important:

The fund manager manages an investment product. The financial advisor helps manage the investor’s overall plan.

A fund can perform exactly as designed and still be inappropriate for a particular investor. Conversely, a fund may trail the S&P 500 while still serving an important role in a properly diversified retirement portfolio.

Why Is the S&P 500 So Difficult to Beat?

The S&P 500 represents large U.S. companies and covers approximately 80% of the available U.S. stock-market capitalization. It is an excellent gauge of the large-cap U.S. stock market—but it does not represent every type of investment or every investor’s financial plan.

There are several reasons an active fund manager may have difficulty outperforming it.

Expenses Create a Higher Hurdle

An index does not have to pay research analysts, portfolio managers or the trading expenses associated with making active investment decisions. An actively managed fund must overcome its operating expenses and transaction costs before it can outperform its benchmark for investors.

FINRA notes that a portfolio manager’s results must compensate for the fund’s operating costs before the fund can outperform its benchmark after expenses.

That does not mean active management can never work. It means the manager begins the competition with a higher hurdle.

The Index Is Almost Always Fully Invested

A risk-conscious manager may hold cash or more defensive investments when valuations appear high or economic conditions appear uncertain.

That caution can help during a decline, but it can also cause the fund to trail the S&P 500 when stocks are rising rapidly. A fully invested index does not have a client calling next month to request retirement income, nor does it have to worry about an investor panicking and selling after a major loss.

The Manager May Have a Different Assignment

A dividend fund, value fund, international fund, bond fund or balanced fund should not automatically be compared with the S&P 500.

Even a diversified retirement portfolio containing large-company stocks, smaller companies, international investments, bonds and cash should not be expected to match a benchmark consisting entirely of large U.S. stocks.

When large U.S. stocks are leading the market, the diversified portfolio will probably trail. When those stocks are struggling, diversification may help soften the decline.

Consistent Outperformance Is Rare

The difficulty of outperforming is not merely theoretical. According to the SPIVA U.S. Year-End 2025 Scorecard, approximately 79% of active large-cap U.S. equity funds underperformed the S&P 500 during 2025. Over the 15 years ending December 31, 2025, approximately 90% underperformed.

Those figures should not be interpreted to mean that every active manager is unnecessary or that every investor should place all of his or her money in an S&P 500 fund. They demonstrate how difficult it is to outperform a low-cost, fully invested benchmark consistently after expenses.

Return Is Only Half of the Story

Suppose two investments have the following two-year returns:

• Investment A gains 20% during the first year and loses 20% during the second.
• Investment B earns 6% during each year.

Investment A’s average annual return appears to be zero. But the investor does not end where he or she started.

A $100,000 investment that gains 20% grows to $120,000. A subsequent 20% loss reduces it to $96,000. The investor has lost $4,000 even though the simple average of the two annual returns was zero.

Investment B grows from $100,000 to approximately $112,360.

This is sometimes called volatility drag. Larger fluctuations can reduce compounded wealth, even when the average annual return initially looks respectable.

That is why performance should not be evaluated solely by asking which investment had the highest return. Investors should also consider:

• How much risk was required to earn the return
• How severe the losses were
• How long recovery took
• Whether the investor needed to make withdrawals during the decline
• Whether the investor was financially and emotionally capable of staying invested

FINRA specifically cautions that there is more to evaluating a fund than whether it beat its benchmark. A fund that trails because it assumes less risk may still be appropriate for an investor’s portfolio.

Time Horizon Changes the Meaning of “Good Performance”

A 35-year-old contributing to a retirement account and a 70-year-old withdrawing from one may own some of the same investments, but they do not face the same risks.

The younger investor may have decades to recover from a major decline. The retired investor may need to sell investments every month to pay living expenses.

Investor.gov explains that investors with longer time horizons may be more comfortable accepting volatile investments because they have more time to wait through market cycles. Investors with shorter horizons may prefer less volatility.

For a retiree, the timing of returns can be as important as the average return.

A major market loss early in retirement can be particularly damaging because the retiree may be withdrawing money while the portfolio is down. Those withdrawals leave fewer shares available to participate in a later recovery. This is commonly referred to as sequence-of-returns risk.

A portfolio that captures slightly less of a rising market but also loses less during major declines may provide a more dependable retirement experience. It may never beat the S&P 500 during a long bull market, but beating the index was never the retiree’s only objective.

The real objective may be to:

• Produce dependable retirement income
• Maintain an emergency reserve
• Reduce the risk of selling during severe declines
• Keep pace with inflation
• Preserve assets for a surviving spouse
• Avoid running out of money

FINRA emphasizes that managing a retirement portfolio requires balancing growth, income, diversification, withdrawals and the need to make savings last throughout retirement.

When Is the S&P 500 an Appropriate Benchmark?

The S&P 500 can be an appropriate benchmark when evaluating a fund whose stated objective is to invest primarily in large U.S. companies.

If a large-cap fund takes risks similar to the index, charges higher expenses and repeatedly underperforms over a meaningful period, investors should ask questions.

However, even then, the comparison should include:

• Performance after fees
• Risk and volatility
• Maximum losses or drawdowns
• Results during both rising and falling markets
• The consistency of the investment process
• The length of the evaluation period

One quarter—or even one year—rarely provides enough information. FINRA recommends comparing investments over several years because shorter periods can be distorted by temporary market conditions or unusual events.

For a diversified portfolio, a blended benchmark may be more appropriate. For example, a portfolio containing stocks and bonds might be compared with a benchmark that reflects similar proportions of stocks and bonds rather than with the S&P 500 alone.

Ask a Better Question

Instead of asking only, “Did I beat the S&P 500?” consider asking:

“Am I earning the return I need, at a level of risk I can tolerate, over the time horizon that matters to my financial plan?”

Additional questions may include:

• Is my portfolio aligned with my retirement-income needs?
• Am I taking more risk than necessary?
• How did the portfolio behave during difficult markets?
• Are my investments properly diversified?
• Are fees reasonable for the services and strategy being provided?
• Am I making progress toward my actual goals?
• Would I be able to remain invested after a major decline?

These questions recognize that investing is not a competition against a television ticker.

The S&P 500 does not know your retirement date. It does not know how much income you need, whether your spouse depends on the portfolio, how you feel about a 30% decline or how long your money must last.

The Bottom Line

Fund managers and financial advisors have different responsibilities.

A fund manager manages a particular investment strategy. A financial advisor helps determine how that strategy fits into a client’s broader financial life.

The S&P 500 is a valuable benchmark for large-cap U.S. stocks, but it is not automatically the correct benchmark for every fund, every portfolio or every investor. Return matters, but so do volatility, losses, recovery time, withdrawals and time horizon.

For someone approaching or living in retirement, the best portfolio is not necessarily the one that wins every calendar-year performance contest.

It is the one designed to help that individual reach the destination with an acceptable level of risk.

Want to learn more? Call us at 256-417-4870 or 407-220-1040.

 

Mike Mickels is the President and Chief Compliance Officer of CochranMickels Retirement Specialists, LLC, and an avid sporting clay competitor. Investment advisory services are offered through CochranMickels Retirement Specialists, LLC., a state-registered investment advisor firm domiciled in Alabama and also registered in Florida. Our firm provides personalized planning and investment services to individuals approaching and in retirement. Disclaimer: This content is intended solely for informational purposes. CochranMickels Retirement Specialists, LLC and its representatives are only authorized to offer advisory services where properly licensed or exempt from licensure. Investing carries risks, including potential loss of principal capital. Our firm does not endorse external links, nor is it responsible for third-party content.