Why index funds win, and why you don't need an advisor

By . Published 2026-10-17. Figures checked against SPIVA's year-end 2025 scorecard and Berkshire's 2017 letter.

Part 1

Most professionals trail a fund that just buys everything

Do this first

  1. Look up what your 401(k) funds charge. The plan's fee disclosure lists each fund's expense ratio.
  2. Find the fund whose name has "index" or "total market" in it, usually the cheapest.
  3. Move new contributions there.
  • 89.9% of large-company funds trailed the S&P 500 over 15 years, and 92.9% over 20 years, in S&P's count to the end of 2025 [1]. In 2025 alone, 79% trailed.
  • Half the funds didn't survive. Only 50.6% of the large-company funds alive 15 years ago still exist [1]. The losers get closed or merged, so the ones you see look better than the real record.
  • Buffett bet $1 million on it and won. From 2008 to 2017 an S&P 500 index fund returned 125.8%. Five hand-picked hedge fund portfolios averaged 36.3% [2].
Share of large-company funds that trailed the S&P 500 Over 1 year 79%, over 15 years 89.9%, over 20 years 92.9% of funds trailed the index. 1 year79% 15 years89.9% 20 years92.9%
Share of US large-company funds that trailed the S&P 500, to 2025-12-31 [1].

Part 2

The average fund has to lose, because of costs

  • Every dollar in the market is the market. If index funds earn the market return, active funds as a group earn it too, before costs. After costs they have to earn less. William Sharpe laid out the arithmetic in 1991 [3].
  • Skill exists, but you can't find it in advance. Fama and French found few funds beat their costs by more than luck explains [4].
  • Costs are the one thing you control. Index stock ETFs averaged 0.14% a year in 2025, against 0.40% for stock mutual funds [5]. The total market funds on our funds page cost 0.03% or less.

Part 3

An advisor isn't necessary: they don't have an edge, and 1% compounds

Do this first

  1. If you pay an advisor, find the fee as a percentage of assets on your statement.
  2. Multiply your balance by it. That's what you pay this year, every year.
  3. If you want a second opinion, book a flat-fee or hourly fiduciary for a one-time plan.
  • 1% a year takes about 16% of the result. $20 a day for 30 years grows to $602,539 in today's money. Through a 1% advisor it's $505,836, so the fee costs $96,703 [6].
  • They pick from the same funds you can. An advisor has no better information than the market. If 90% of full-time fund managers can't beat the index, a planner choosing funds won't either.
  • The fair counterpoint is behavior. Vanguard estimates good advice can add about 3% a year, mostly by stopping people from selling in a crash [7]. Vanguard sells advice. If an advisor is the only thing keeping you invested, that's worth paying for. Automating it, below, does the same job for free.

Sources

  1. S&P Dow Jones Indices, SPIVA U.S. Scorecard, Year-End 2025, data to 2025-12-31.
  2. Berkshire Hathaway, 2017 shareholder letter, p. 11, the final scorecard of the 2008-2017 bet.
  3. William F. Sharpe, "The Arithmetic of Active Management," Financial Analysts Journal, 1991.
  4. Eugene Fama and Kenneth French, "Luck versus Skill in the Cross-Section of Mutual Fund Returns," Journal of Finance, 2010.
  5. Investment Company Institute, fees in 2025, released 2026-03-25.
  6. Lazy Nest Egg calculation: $20 a day for 30 years at 6.24% real (90% stocks, 10% bonds, Damodaran, 1928-2025), with and without a 1% yearly fee.
  7. Vanguard, "Putting a value on your value: Quantifying Adviser's Alpha." Vanguard sells advice.