I’m New to This - Can I Really Do It?

Yes - if you follow rules, not vibes.

Two realities to accept early:

1. Most active funds underperform over time.

2. Even good funds are often mistimed by humans.

The antidote isn’t prediction. It’s structure.

Reality One: Most Active Funds Lose to the Index

SPIVA’s scorecards are unforgiving. Across a decade of data, the story doesn’t change: the majority of active managers fail to beat their benchmarks. By the end of 2024, the figure hit 91% underperformance.

📊 Active Global Equity Funds Underperformance Rates (SPIVA) Most years, 70–90% of active funds trail the index. In 2024, it was nine out of ten.

This isn’t bad luck. It’s structural. Higher fees, relentless competition, and index concentration all tilt the odds against you.

Reality Two: Investors Compound the Damage

Even if you pick a strong fund, chances are you won’t capture its return. Morningstar’s Mind the Gap study shows investors typically earn around 1 percentage point less per year than their funds - simply because they chase performance and panic at the wrong time.

📊 Investor Return Gaps by US Category Group (Morningstar)

Across equity, bond, and allocation funds, investors consistently underperform the very products they own. Zoom out, and you see why. Money tends to flow in after rallies and out after downturns.

📊 Investor Return Gaps and Net Flows (Morningstar)

Behavioural timing drags down returns - investors buy high, sell low, repeat.

Rules Add Value

The fix isn’t stock-picking genius, it’s rules. Vanguard’s Adviser’s Alpha research puts numbers on it: behavioural coaching, rebalancing, and cost discipline can add 100–200 bps per year - enough to close the gap and then some.

📊 Vanguard Adviser’s Alpha Table

Following a simple checklist of rules adds more value than most investors ever capture through prediction.

The real edge? Boring consistency. The discipline to keep investing when markets are scary, and to avoid chasing when they’re euphoric.

A Note for UK Readers: Fees and Wrappers

Costs are the one lever you fully control. In workplace pensions, the charge cap is 0.75% per year. Think of that as a ceiling, not a target. Lower is almost always better.

📊 Exhibit 5: UK Pensions Regulator

Flat fees and percentage charges are regulated to protect savers. Still, high fees quietly erode compounding over decades.

Process Over Prediction

So if you’re new to this, here’s the answer: yes, you can do it. Not by forecasting the market, but by following a checklist:

• Diversify globally across equities and quality bonds.

• Automate contributions.

• Rebalance on a schedule.

• Keep active bets small, cheap, and rules-based.

• Keep fees below the cap — ideally well below.

You don’t need to be an oracle. You just need discipline.

Be boring when markets are exciting. Be cautious when markets are euphoric. That’s the quiet edge most investors miss. Disclaimer:

This article is provided for educational purposes only and does not constitute investment advice, financial advice, or a recommendation to buy or sell any security, fund, or financial product. Past performance is not a reliable indicator of future results, and investments can go down as well as up. You may not get back the amount you originally invest.

References to SPIVA, Morningstar, Vanguard, and The Pensions Regulator are based on publicly available data as of the dates cited. While care has been taken to ensure accuracy, no guarantee is made regarding completeness or timeliness.

If you are unsure whether an investment or pension arrangement is suitable for you, please seek advice from a regulated financial adviser. Alpesh Patel OBE www.campaignforamillion.com