Question and answer about how to beat the S&P 500

On May 30, 2023, from a friend of Monday Morning Millionaire 


Hi Milan

I think this may be a way to beat the S&P 500.

One year ago I bought an exchange-traded fund (ETF) tracking the the S&P 500 then sold a call against it and received $US43.00 in premium income.

This capped my upside at 12%. If the ETF drops 10% I break even. If it moves up 5% I still make 12% for the year.

What do you think?

Monday Morning Millionaire Program Answer:

Thank you for your question.

Your strategy works well in a slightly declining or lateral market. In a sharply rising market investors are better off holding the S&P 500 itself and NOT writing (selling) covered calls using the ETF as the underlying security.

Over the long term, that is, a market cycle, (peak to trough to peak) we frequently state that historically, 1.) over the long term, 2.) properly selected US market index exchange-traded funds, 3.) held in tax-advantaged accounts, 4.) in an appropriate asset allocation, have been the investors best way for growing savings and are likely to remain so for many years.

(Money that investors need for essential spending over the next few years does not belong in the market.)

From the late David Swensen, manager of the Yale University endowment fund, the most successful of all:

“When you look at the results on an after-fee, after-tax basis, over reasonably long periods of time, there’s almost no chance that you end up beating the index fund (an ETF tracking the S&P 500).”

“…security selection and market timing make no material contribution to returns…”

“…asset allocation accounts for the largest share of portfolio returns.”

A 50/50 S&P 500/cash or near cash asset allocation works well for most investors.

Luck hardly matters with the habits of the Monday Morning Program.

Good luck!


Dr. Milan Somborac

The Monday Morning Millionaire Program supports do-it-yourself (DIY) investors which I have been for over 50 years. About my team and me