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As I write this, we have a house full of my daughter's friends for a sleepover birthday party. Despite the non-stop chattering (and shrieking), I still have no idea what 9-year-old girls talk about. I assume the main topics were puppies and Justin Bieber. All I know is I have two jobs for the party. 1) Make my famous baked ziti. 2) Go upstairs and remain unseen for the rest of the evening. I handle both with incredible skill.

But there is one other important responsibility I undertake every year around my daughter's birthday. I invest for her education.

When she was born, I did what a lot of sleep-deprived parents do. I put her money into mutual funds, expecting the professional money managers to beat the market and generate a strong return. But as the fog of sleep deprivation cleared, I realized I can do a better job than the so-called pros. Over the past 10 years, 48% of mutual fund managers beat the S&P 500 or their specific benchmark. Last year… just 39% hit their mark.

So in any given year, mutual funds offer less than a 50% chance of outperforming the overall market. That means you have better odds of success if you simply buy the SPDR S&P 500 ETF (SPY) and forget about it.

You Can Win

Any investor can beat the pros for a few simple reasons:

  • Fees - When you invest in a mutual fund, you pay management fees. The average mutual fund charges 0.81% in annual expenses (some are much higher). It may not sound like much, but go 10 years without paying fees and you'll have 8% more money.

  • Performance anxiety - Fund managers are under pressure to beat the benchmarks so the folks in their marketing department can brag about market-beating returns in their advertising. That forces the managers to make short-term decisions that hamper long-term performance.

  • No one cares more about your money than you - It is one of Investment U Chief Investment Strategist Alexander Green's favorite sayings, and it's absolutely true. Only you will manage your money in the way that is most suitable for your needs.

  • Flexibility - Fund managers have millions of dollars they must put to work. So they often can't invest in smaller companies without blowing share prices out of the water. As an individual investor, you can invest a few thousand dollars into even the smallest names and almost always get the price you want.

How to Beat the Pros

It couldn't be simpler (or cheaper) to beat the pros. If you use one of my favorite strategies, your returns will be the strongest amongst all your friends, and, best of all, this tactic has proven itself over decades in all kinds of market environments.

Again, it's simple… Buy stocks that raise their dividends every year. These stocks typically outperform the market. Even better, they put more money in your pocket every year.

For example, Air Products & Chemicals (APD) has raised its dividend every year for 31 years. Over the past 10 years, the average annual raise has been 11.8%. The most recent dividend hike was 12.1%. Those figures have led to some serious outperformance. Over the past 10 years, Air Products beat the S&P 500 by 45%. In other words, if you invested $10,000 in Air Products a decade ago, you'd have $25,200 today. If you stuck with the S&P 500, you'd have just $20,700.

Believe me, I'm not cherry-picking Air Products. Since 2003, the S&P Dividend Aristocrat Index, which consists of S&P 500 stocks that have raised their dividend every year for 25 years or more, has beaten the S&P 500 by an average of 71% over rolling 10-year periods (1994-2003, 1995-2004, etc.). Better yet, even during the index's worst period, it still beat the broader market by 50%.

Even in the short term, Aristocrats outperform the market, beating the S&P 500 in 17 of the past 23 years on a one-year basis. The average out-performance was over 4% per year. And the best part is there are no management fees eating into your profits. You actually keep all the money you make. If you use a discount broker, you pay $7-$10 for your trade and then it never costs you another dime until you sell. The strategy is simple, cheap and, most importantly, it works.

Get your hands on dividend raisers and you'll be as good as I am at securing my children's future. But as far as my baked ziti is concerned, you don't have a chance. Their plates were all clean.

Disclosure: Investment U expressly forbids its writers from having a financial interest in any security they recommend to our subscribers. All employees and agents of Investment U (and affiliated companies) must wait 24 hours after an initial trade recommendation is published on online - or 72 hours after a direct mail publication is sent - before acting on that recommendation.

Source: Beat The Market With Dividend Stocks