By Mint Money Guide Team
November 16, 2025
In January 2020, I started an investment experiment that would fundamentally change how I think about building wealth. I divided $100,000 into two equal portfolios:
Portfolio A: $50,000 in a simple S&P 500 index fund (VOO)
Portfolio B: $50,000 picking individual stocks based on research, analysis, and "hot tips"
I committed to tracking both portfolios for 5 years with identical contribution schedules ($1,000 monthly to each). After taxes, fees, time invested, and emotional costs, one strategy emerged as the clear winner.
Spoiler: It probably isn't the one you think.
Like many investors, I believed I could outsmart the market. My reasoning seemed sound:
I had advantages: A finance degree, access to research tools, time to analyze companies, and discipline to stick to a strategy.
The data was available: Company financials, analyst reports, earnings calls - everything needed to identify undervalued stocks was public information.
Professional track record: Some fund managers consistently beat indexes. If they could do it, why couldn't I?
Market inefficiencies: Surely there were opportunities the market overlooked that individual investors could exploit.
I was confident Portfolio B would outperform by at least 3-5% annually. I was wrong.
Portfolio A (Index Fund): +18.4% ($59,200)
Portfolio B (Stock Picking): +27.8% ($63,900)
My stock-picking portfolio crushed the index! I was euphoric. My picks included:
I felt like a genius. I spent roughly 8 hours weekly researching stocks, reading earnings reports, and analyzing trends. At this point, it felt worth it.
Time invested: ~400 hours
Portfolio A (Index Fund): +26.9% ($75,045)
Portfolio B (Stock Picking): +11.2% ($71,059)
The market continued climbing, but my portfolio stalled. Here's what went wrong:
I held losers too long: Peloton crashed from $115 to $38. I held it hoping for a recovery that never came. Loss: $8,900.
I sold winners too early: I sold Nvidia at $112 to "lock in profits" (it went to $189). Opportunity cost: $14,600.
I chased momentum: I bought GameStop at $89 during the meme stock craze. It crashed to $31. Loss: $6,900.
Emotional decisions: Fear and greed drove my choices more than analysis. I bought high (fear of missing out) and sold low (panic during dips).
Meanwhile, Portfolio A just kept steadily climbing with zero effort.
Time invested: ~450 hours (I spent more time trying to "fix" my underperformance)
Portfolio A (Index Fund): +19.4% ($89,588)
Portfolio B (Stock Picking): +22.1% ($86,764)
On paper, my stock picks finally performed better again. But then tax season arrived.
Portfolio A tax bill: $0 (no shares sold, no taxable events)
Portfolio B tax bill: $8,947 in capital gains taxes from my frequent trading
I had made 47 trades in year 3, triggering short-term capital gains taxed at my ordinary income rate (32%). The index fund had zero trades and zero tax consequences.
After-tax reality:
Portfolio A: $89,588
Portfolio B: $77,817 (after paying taxes)
This was my first realization that performance isn't just about returns - it's about tax efficiency.
Time invested: ~380 hours
Portfolio A (Index Fund): -18.1% ($73,382)
Portfolio B (Stock Picking): -31.7% ($53,146)
When the market crashed in 2024, my stock portfolio got destroyed. I was overweight in tech stocks that fell 40-60%. My "careful analysis" didn't protect me from the downturn - it made it worse.
I panicked and sold several positions at the bottom, locking in catastrophic losses. The index fund fell too, but I never felt tempted to sell because it required no decision-making. I simply held.
This exposed a critical insight: Individual stock picking amplifies both gains and losses, but the psychological toll of losses is far more painful than the joy of equivalent gains.
Time invested: ~500 hours (obsessively checking positions during the crash)
Portfolio A (Index Fund): +24.7% ($91,450)
Portfolio B (Stock Picking): +38.9% ($73,817)
The market roared back, and both portfolios recovered. My stock picks had higher percentage gains - but started from a much lower base after the year 4 disaster.
Final 5-year comparison (including all contributions):
Portfolio A (Index Fund):
Total invested: $110,000 ($50K initial + $1K monthly × 60 months)
Final value: $198,450
Total return: 80.4%
Annualized return: 12.5%
Time invested: ~5 hours (initial setup + annual rebalancing)
Taxes paid: $0
Stress level: 1/10
Portfolio B (Stock Picking):
Total invested: $110,000
Final value: $161,817
Total return: 47.1%
Annualized return: 8.0%
Time invested: ~1,730 hours
Taxes paid: $18,947
Stress level: 9/10
The shocking truth: My index fund outperformed my actively managed portfolio by $36,633 (23% higher returns) while requiring 99.7% less time and creating zero taxable events.
After analyzing my 5-year experiment, several factors explain why passive indexing crushed active stock picking:
1. Diversification eliminates individual stock risk: When one of my picks crashed, it devastated my portfolio. When one S&P 500 company crashes, it's a 0.2% blip.
2. Emotional discipline is automatic: Index investing removes decision-making during volatility. I can't panic sell or chase momentum because there are no decisions to make.
3. Tax efficiency compounds wealth: Not triggering capital gains allowed my money to compound without tax drag. Over decades, this difference becomes massive.
4. Time is your most valuable asset: I spent 1,730 hours managing Portfolio B. At my $85/hour consulting rate, that's $147,050 in opportunity cost. I literally would have made more money working those hours and investing the proceeds in index funds.
5. Fees matter more than you think: My brokerage charged $4.95 per trade. After 217 trades over 5 years, I paid $1,074 in trading fees. Portfolio A had a 0.03% expense ratio costing just $47 total.
6. You're competing against professionals: On the other side of every trade are hedge funds with PhD analysts, AI algorithms, and instant access to information. I was bringing a calculator to a supercomputer fight.
My experience isn't unique. The data is overwhelming:
SPIVA Scorecard: Over the past 15 years, 92% of actively managed funds underperformed the S&P 500 after fees.
Warren Buffett's bet: In 2008, Buffett bet $1 million that an S&P 500 index fund would outperform a collection of hedge funds over 10 years. The index fund won by a landslide (125.8% vs 36.3%).
Dalbar study: The average investor underperforms the S&P 500 by 3.7% annually due to poor timing decisions (buying high, selling low).
Nobel Prize research: Eugene Fama won the Nobel Prize in Economics for proving that markets are largely efficient, making consistent outperformance nearly impossible.
After this experiment, I don't believe stock picking is inherently wrong. But it only makes sense if:
You have true edge: Industry expertise, proprietary information (legal only!), or analytical capabilities beyond professional investors. This describes <1% of individual investors.
You treat it as entertainment: If researching stocks is your hobby and you're willing to pay for the entertainment (through underperformance), go for it. Just limit it to <10% of your portfolio.
You're extremely disciplined: Can you hold losers when you should sell? Sell winners when you should hold? Avoid panic during crashes? Most people (including me) can't.
You have unlimited time: Competing against full-time professionals requires full-time effort. If you're not spending 40+ hours weekly on research, you're at a massive disadvantage.
After this 5-year experiment, I've completely changed how I invest:
85% in index funds:
10% in real estate: Rental properties and REITs for diversification and cash flow
5% in individual stocks: "Fun money" for stock picking without risking my financial future
0% in cryptocurrency: Too volatile and speculative for my core portfolio (though I allocate 2% of my "fun money" here)
I rebalance annually, contribute consistently regardless of market conditions, and ignore financial news that tempts me to trade.
Beyond the financial returns, index investing eliminated massive psychological burden:
No more anxiety: I don't check my portfolio daily anymore. I barely think about it.
No more decision paralysis: "Should I sell?" "Should I buy more?" "Is it too late?" These questions consumed mental energy. Now I just auto-invest monthly.
No more FOMO: When stocks surge, I don't feel left out. I own everything through my index funds.
No more regret: I can't make "wrong" decisions because I'm not making active decisions.
The mental freedom is worth more than any potential outperformance.
Step 1: Open a brokerage account (Vanguard, Fidelity, or Schwab - all excellent).
Step 2: Invest in a simple three-fund portfolio:
- 70% total U.S. stock market index fund
- 20% total international stock index fund
- 10% total bond market index fund (adjust based on age and risk tolerance)
Step 3: Set up automatic monthly contributions. Invest the same amount every month regardless of market conditions.
Step 4: Ignore market news, hot stock tips, and the temptation to trade. Let your money compound for decades.
Step 5: Rebalance once per year by selling winners and buying losers to maintain your target allocation.
The most important lesson from my 5-year experiment: The best investment strategy is boring.
No exciting stock picks. No adrenaline-pumping trades. No genius market timing. Just consistent, disciplined, automated index investing.
I wasted 1,730 hours and $36,633 learning what Nobel Prize winners, Warren Buffett, and countless studies already proved: For 99% of investors, low-cost index funds are the optimal wealth-building strategy.
Stop trying to beat the market. Join it. Your future self will thank you.
Written by
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