After a Rip-Roaring 2023, the Markets Are Taking a Breather

Note that the average fund substantially lagged the broad stock market averages. Most funds are actively managed, by professionals trying to beat the market. By contrast, broad low-cost index funds, which merely seek to mirror the markets, generally did their job well.

For example, the Vanguard Total Stock Market Index Fund returned 12.3 percent for the quarter and 26.1 percent for the year, beating the average fund as well as the S&P 500. That, in a nutshell, is why I believe it’s better for most people to use low-cost index funds.

Most global markets also did well in 2023 — and, as usual, the average fund trailed the market returns. For example, an important global benchmark, the MSCI All Country World Index (often known as ACWI) returned more than 21 percent in 2023. The average international fund in the Morningstar database returned only 14.3 percent

Of course, some individual stocks did much better than average. Nvidia, which makes advanced computer chips, rose 239 percent in 2023. Meta, Facebook’s parent company, gained 194 percent, after falling 64 percent the previous year on investor skepticism about the company’s focus, back then, on the so-called metaverse. In 2023, though, these big tech stocks benefited from the artificial intelligence frenzy and lifted the S&P 500. Perhaps more surprising, cruise lines surged, too: Royal Caribbean soared 162 percent, and Carnival rose 130 percent. If you had focused on any of these stocks at the start of 2023, you would have been winner.

Then again, most stocks underperformed the averages. Dollar General, Moderna and Estée Lauder, all important S&P 500 stocks, lost more than 40 percent in 2023.