It’s one of the most enduring beliefs in finance: beating the stock market is next to impossible. Study after study—spanning decades—has shown that most professional money managers fail to outperform their benchmarks. Retail investors, lacking the resources and infrastructure of Wall Street, are widely presumed to fare even worse.
The data backs it up. According to the S&P Dow Jones Indices SPIVA U.S. Scorecard, nearly 89% of actively managed large-cap funds underperformed the S&P 500 over the 10 years ending in 2019. Hedge funds, despite their image of elite strategy, haven’t fared much better. Warren Buffett famously bet $1 million that a simple S&P 500 index fund would beat a selection of hedge funds over a decade. He won—handily.
So, is beating the market truly a fool’s errand? Or is there more nuance to the story?
The Metrics Behind the Myth
To understand the odds, it’s important to define the target. “Beating the market” typically refers to generating a higher return than the S&P 500—a broad index of 500 large-cap U.S. stocks. Historically, the index has returned about 8% to 10% annually, making it a high bar.
Passive investing in index funds has become the default approach for many—especially since it offers market-matching returns at low cost. But this strategy comes with an implicit admission: most people, even professionals, can’t do better.
Yet some argue this conclusion ignores a few key advantages retail investors hold. For starters, they don’t pay the same management fees hedge funds or mutual funds charge. Nor do they face the career risk that fund managers must consider—like the pressure to avoid short-term losses even at the expense of long-term gains.
Retail investors also aren’t managing billions of dollars, meaning they can be nimbler. Large funds can distort stock prices simply by buying or selling in high volume. Regular investors have the luxury of executing trades without moving the market.
Structural Advantages—and Human Limitations
Despite these built-in edges, psychology often stands in the way. Many individual investors struggle with emotional decision-making—buying high in a frenzy and selling low out of fear. They chase headlines, panic during volatility, and often fail to adhere to a consistent investment strategy.
“Even if you have the tools to beat the market, most investors fall short because they don’t have the discipline,” said George Kailas, CEO of Prospero.AI, an investment platform that uses artificial intelligence to analyze market trends. “The difference between knowing how markets work and knowing how to move through them in real time is massive.”
This, Kailas argues, is where AI can change the game—not by predicting the future, but by helping investors see through the noise.
“People love to glorify gut instinct in the market, but instincts are just bias wearing a confident face,” he added. “Machine learning doesn’t care about hunches or hype. It sees what we can’t—patterns buried in data, signals forming before they hit the headlines. The market isn’t built on feelings. It’s built on math.”
A Hybrid Future?
AI-assisted investing is gaining traction, with firms increasingly offering platforms that provide algorithmic insights tailored for retail use. These tools don’t replace human judgment but aim to improve it—filtering out emotional impulses and focusing on probabilities, not predictions.
Still, most experts agree that beating the market consistently over time remains unlikely. For the average investor, the best route may still be a hybrid approach: keep a strong core of index funds to match market performance, and allocate a smaller portion of the portfolio to active bets, whether based on research, conviction, or AI-backed insights.
And if those bets pay off? All the better.
Beating the market is hard. It always has been. But it’s not impossible—particularly for disciplined investors who avoid emotional pitfalls and leverage tools that sharpen their strategy.
While most should accept market-matching returns as a sound foundation for long-term wealth, the rise of intelligent, accessible investing tools may mean that more individuals can finally start playing the game with a fairer hand.
And for some, that might just be enough to tip the scales.