Index investing scores another point, and alleviates stress

If you are a do-it-yourself investor or you like to keep an eye on what the pros are doing with your money, there’s a lot to consider right now.

Tariffs. Rising bond yields. A potential bubble in artificial intelligence stocks. The list goes on.

Whether you are trying to score healthy returns on your investments or keep your money safe from a potential downturn, the risks of making a bad decision could be weighing on you.

That’s why the S&P Indices Versus Active (SPIVA) scorecards can be helpful. Through regular updates on how professional money managers are performing relative to major benchmarks, they demonstrate that it can be very hard to beat a broad index over time.

The results strongly suggest that simply tracking an index is usually better for financial performance than stock picking, especially over the longer term. And it doesn’t generate as much stress because there is no need to fret over details.

Last week, the U.S. scorecard for the first half of 2026 showed that 67 per cent of all active large-cap U.S. equity funds underperformed the S&P 500. The returns are net of fees, which is a significant drag on actively managed funds.

That’s actually an improvement over 2025, when 79 per cent of funds underperformed the index over the course of the full year. Nonetheless, the result fits with a long-established trend of underperformance.

There is a lot to unpack here, and I recommend reading the full report if you want to get into the weeds.

One highlight for me: The equal-weighted version of the S&P 500, where big name behemoths and lesser-known stocks exert the same influence, outperformed the market capitalization weighted version of the index.

That may have provided more stock-picking opportunities in the first half of the year.

“In periods when the average constituent outperforms the benchmark, it should be easier to select stocks that outperform,” Anu Ganti, head of U.S. index investment strategy at S&P Dow Jones Indices, said in the report.

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But the biggest take-away from these SPIVA scorecards is that the relative performance of equity funds over the longer term remains dismal: 83 per cent of funds underperformed the S&P 500 over the past 10 years.

Granted, index investing gets its share of abuse. Often, it is seen as settling for average when you could be far more ambitious with your returns. Some critics also believe the approach is better suited to bull markets than downturns.

More recently, some researchers have contended that the rising popularity of indexing or passive investing is feeding equity bubbles. That’s because incoming money is indifferent to valuations, and therefore disproportionately supports the most expensive stocks. Or so the argument goes.

But the SPIVA scorecards, which look at more indexes than just the S&P 500, offer a persuasive case in favour of indexing.

Since most actively managed funds fail to keep up with indexes, and this year is no exception, tracking indexes is often the better approach. For individual investors, who might not be trained pros, the argument is even stronger.

The best part? Indexing requires very few decisions apart from which indexes to track. And there’s nothing stopping you from having a little fun with a small slice of your money that isn’t indexed.

This week’s question: If you are making an investment today with fresh cash, are you likely to direct the money to some sort of index or take an active approach? Let me know at dberman@globeandmail.com.

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New research that caught my eye?

Psst. Here’s an inside tip from a journalist who has recently entered his fourth (and last!) decade in the profession: Avoid asking questions in the headline. I figure it signals to the reader that I’m about to meander. According to fresh academic research from the Stanford Graduate School of Business, titles framed as questions can reduce reader interest.