THE (Simple) STRATEGY That Has ALWAYS Beaten the S&P 500

Key Points 📌

• Significant historical outperformance: Over the last 20 years, the momentum strategy (buying the strongest stocks) has consistently generated higher returns than the standard S&P 500, with data showing a massive 373% return over the last decade compared to the index’s 248%.

• Simple replication using Forecaster: You do not need complex analysis to execute this strategy; simply use the Forecaster ranking page to filter S&P 500 companies by “Price Change” over a one-year period to identify the top performers.

• Higher volatility risks: While the long-term gains are superior, this strategy ignores fundamentals and relies purely on price action, meaning these specific stocks may suffer deeper declines than the broader index during sudden market crashes.

For decades, the standard advice for most investors has been to simply “buy the index” and settle for the market average. While this is a safe approach, it often leaves potential gains on the table. Today, we are going to break down a strategy that has consistently outperformed the S&P 500 over the past 20 years.

We are not talking about complex algorithmic trading or obsessing over P/E ratios. We are talking about Momentum.

By using the data available in Forecaster, we can visualize exactly how this strategy works and, more importantly, how you can replicate it step-by-step to build your own high-performance portfolio.

The power of momentum investing

The concept behind this strategy is surprisingly straightforward: winners tend to keep winning. In the financial world, this is known as “momentum.” Instead of looking for undervalued companies or analyzing balance sheets, a momentum strategy focuses purely on price action. It involves buying the stocks that have performed the best over a specific trailing period.

To illustrate why this matters, let’s look at the data. We can compare the standard S&P 500 index against the S&P 500 Momentum ETF (SPMO), which automatically applies this logic. The difference in returns is striking.

According to the data we analyzed, here is how the momentum strategy stacks up against the standard market:

• 3-Year Performance: The S&P 500 returned 77%, while the momentum strategy delivered 113%.

• 5-Year Performance: The standard index made 84%, whereas the momentum version hit 132%.

• 10-Year Performance: The gap widens significantly, with the S&P 500 at 248% and the momentum strategy soaring to 373%.

These numbers prove that simply tilting your exposure toward the strongest stocks in the index can yield superior results. But you don’t necessarily need to buy an ETF to do this. With Forecaster, you can identify these companies yourself.

How to identify the winners using Forecaster

One of the greatest advantages of using Forecaster is the ability to filter out the noise and focus on raw performance data. You can effectively create your own “personal ETF” by selecting the top components of the S&P 500.

Replicating this strategy takes only a few seconds inside the software. Here is the exact workflow:

1. Navigate to the Ranking Page: Open Forecaster and head to the main Ranking section.

2. Select the Index: Filter your view to show only the S&P 500.

3. Apply the Price Change Layer: This is where the magic happens. Select the Price Change metric.

4. Set the Timeframe: Click on the 1-Year timeframe.

Once you do this, Forecaster will instantly sort the entire index to show you the top-performing companies over the last 12 months.

The logic here is undeniably simple: you are investing in the companies that have already proven they are the leaders of the current market cycle. You are ignoring the laggards and focusing your capital on the stocks that are driving the index’s growth.

Why simplicity beats complexity

Many investors feel that a successful strategy requires deep fundamental analysis—reading earnings reports, analyzing debt ratios, and predicting macro-economic trends. However, the strategy we are highlighting today ignores all of that.

As we can see inside Forecaster, this approach does not care if a company is “overvalued” by traditional metrics. It does not care about the P/E ratio. It only cares about one thing: past performance.

While the disclaimer “past performance is not indicative of future results” is standard in finance, the momentum factor is a proven anomaly that has persisted for decades. By using Forecaster to identify the top decile of the S&P 500 based on 1-year returns, you are aligning your portfolio with the market’s current sentiment and flow.

Understanding the risks

While the upside is clear—beating the market by significant margins over the long run—we must also address the risks. Momentum strategies are aggressive.

If the broader market collapses, momentum stocks often fall harder than the general index. Because these stocks have run up significantly in price (which is why Forecaster identifies them as top rankers), they have further to fall during a correction. They can be more volatile than the defensive “Dogs of the Dow” or value stocks.

However, for investors with a long-term horizon, the data shows that the periods of outperformance have historically outweighed the volatility during downturns.

Building your 2025 portfolio

If you want to take control of your returns, you don’t need to wait for a fund manager to do it for you. You can use this strategy right now.

Go to the Forecaster ranking page, look at the top performers on the 1-year timeline, and these are the candidates for your portfolio. This is one of the easiest, most transparent strategies available globally.

By combining a robust execution platform with the data insights from Forecaster, you are equipping yourself with the tools professional traders use to stay ahead of the curve.