How easy is beating the market?

A brief foray into Australian tax law, and how much you really need to make to "beat the market". TL;DR, you might need to make 16 times more.

How easy is beating the market?

How much do you need to make in a year to beat the market?

Well, firstly, you can't know how the market did until the year is over.

But let's say the market made 10% one year - if you made 10.1% trading, you're ahead, right?

The answer is, it depends on your tax bracket.

Capital gains tax

You get a 50% discount on capital gains tax if you held the asset for more than a year... and day traders typically don't do that.

If you're in the highest tax bracket, you need to beat the market by 40% to break even. And that's not including the hourly rate you should consider of time spent watching markets, reading books and blogs, building trading bots, getting overly invested in finance twitter, and so on, when you could have just bought one index fund and never thought about it again. Opportunity cost is a real thing, too, but much harder to calculate.


Ah, tax incentives on steroids.

You pay less tax on money that goes into your super (aka retirement) account, and then you pay less tax on gains made in your super account.

I'm going to choose the numbers that make this difference the most stark.

Let's say you're earning between 180k-250k per year – this is the highest tax bracket, but also doesn't slip into your super getting Division 293'd.

Income and capital gains tax would be 45% in the wild, and 15% in super.

The difference between:
(1) Putting your post-tax income into the market, and
(2) Putting your pre-tax income into your super account
is HUGE in the first year.

The exact figure for breaking even depends on how much your super account makes that year. But if your super makes 7% in a year, you need to beat it by a whopping 16 times to match it.

Here's the breakdown:

Super account gains How much you need to beat it by to break even
7% 16.4x
10% 12.1x
15% 8.8x
20% 7.2x
50% 4.3x

Who said beating the market wasn't easy? 😅