Why Owning “the Market” Still Matters
Attribution: This article is based on and adapted from Larry Swedroe’s WealthManagement.com article, “A Century of Stock Market Winners and Why Most Stocks Failed to Deliver”, which summarises research by Professor Hendrik Bessembinder on 100 years of US stock market returns.
For many investors, particularly those who have built meaningful wealth over several decades, it is tempting to believe that successful investing comes down to finding the right companies. The great winners are well known: Apple, Microsoft, Amazon, Nvidia and others. With hindsight, it can appear obvious that these businesses would go on to create vast wealth.
The problem is that hindsight is not an investment strategy.
Research by Professor Hendrik Bessembinder, covering every common stock listed in the US between 1926 and 2025, provides one of the clearest reminders of why broad diversification remains so important. Over that century, the overall US stock market delivered extraordinary long-term returns. However, the typical individual share did not.
In simple terms, the stock market as a whole was a remarkable wealth creator, but most individual stocks were not.
The key finding is most shares disappoint
The study looked at nearly 30,000 US listed stocks over 100 years. While the total market produced enormous gains, the median individual stock lost money over its lifetime. Only around 48% of stocks produced a positive return at all, and fewer than 28% outperformed the overall market during their listed lives.
This is a crucial point for investors to understand. The average stock market return can be highly misleading because stock market returns are not evenly spread across all companies. A small number of exceptional businesses create a very large proportion of the total wealth.
A share can only fall by 100%, but in rare cases it can rise by thousands of percent. This means a small number of spectacular winners can pull up the overall market return, even though many individual companies produce poor results.
Wealth creation is highly concentrated
Perhaps the most striking conclusion is just how concentrated stock market wealth creation has been. According to the study, around 59% of US companies destroyed wealth relative to US Treasury bills. Put another way, investors would have been better off in short-term government bills than in most individual shares.
All of the net wealth created by the US stock market over the century came from just 3.7% of companies. The rest, collectively, added no net value once winners and losers were combined.
At the very top, the concentration becomes even more remarkable. Apple and Nvidia alone accounted for more than 10% of all US stock market wealth creation over the 100-year period. The top five companies, Apple, Nvidia, Microsoft, Alphabet and Amazon, accounted for around 21%.
For investors, the lesson is not that they should simply buy the largest technology companies today. The real lesson is that very few people can reliably identify tomorrow’s great winners in advance.
Why this matters more in retirement
For high-net-worth investors over 60, this research has particular relevance. At this stage of life, the purpose of capital often changes. The focus may shift from pure accumulation to income, capital preservation, estate planning and long-term financial security for a surviving spouse or future generations.
A concentrated portfolio can feel comfortable, especially if it includes familiar companies, legacy holdings or shares that have performed well historically. However, concentration risk can be dangerous. The fact that a small number of shares drive market returns means that missing the winners can seriously damage performance. Equally, holding too much in a former winner that later disappoints can have a major impact on retirement plans.
Diversification is not about giving up ambition. It is about improving the probability of capturing the market’s long-term return without depending too heavily on a few individual outcomes.
“Time in the market” still matters, but breadth matters too
One of the encouraging messages from the research is that time remains a powerful ally. Some of the greatest cumulative returns came from companies held over many decades. Compounding works best when it has time to operate.
However, there is an important qualification. Time only helps if the assets held are capable of compounding successfully. Holding a poor individual stock for 20 or 30 years does not turn it into a good investment. It may simply lock in long-term underperformance.
This is why the better lesson is not merely stay invested. It is stay invested broadly.
What investors should take away
There are five practical lessons.
First, diversification is not just a cautious approach; it is essential. If only a very small number of companies create most of the wealth, owning a broad spread of investments increases the chance of owning those winners.
Second, average returns can be deceptive. The market return is not the same as the return from a typical individual share.
Third, stock picking is harder than it looks. Many of the companies that created huge wealth in recent years were not obvious leaders a decade earlier.
Fourth, cash and low-risk assets still have a role. Treasury bills were a tougher benchmark than many investors might assume, with most individual shares failing to beat them over their lifetimes.
Finally, discipline matters. Investors do not need to predict every winner. A well-structured portfolio can be designed to participate in long-term market growth while managing risk in a way that reflects age, income needs, tax position and estate planning objectives.
The adviser’s perspective
For investors in later life, the objective is rarely to chase the next market superstar. It is usually to preserve financial independence, support a desired lifestyle, and pass wealth on efficiently.
This research reinforces a timeless principle: successful investing is less about finding the needle in the haystack and more about owning the haystack in a sensible, tax-aware and risk-controlled way.
If you have a question about your investments, then please get in touch via the form below or call us on 01825 76 33 66.