It's really not that bad. If you want, the Wilshire 5k is probably about as broad as you can go. And with market cap weighting, the additional diversification wouldn't likely help much.
You can be immensely wealthy if you beat it consistently. Almost no professionals can. Warren Buffet is winning his $1m charity bet that the S&P beats pro hedge funds over a decade:
> His horse in the race, the Vanguard 500 Index Fund Admiral Shares, which tracks the benchmark S&P 500 index, is up 65.7 percent. That's well ahead of the 21.9 percent average gain for the unnamed five funds of hedge funds chosen by Protege Partners, a New York City money management firm.
So not just an average of hedge funds, but ones specifically selected to out perform by a multi-billion dollar management firm.
Warren Buffet is a spectacular value investor, but those funds are not representative of the best performers in the industry. A brief Google search demonstrates that a variety of hedge funds have consistently beaten the S&P 500 for well over a decade; in some cases, for 25-30 years.
I do agree with you that almost no professional can beat the S&P 500, but I think that is due to a variety of factors, including but not limited to the outright difficulty. For example, if you beat the market consistently you still might not become rich. With $100k in starting capital, "merely" beating the S&P 500 by a few percentage points each year (let's say 10% average annual return instead of 7%) will not make you rich in the conventional sense of the word. This prevents many people with the aptitude from investing in the skill development because they could earn a greater living doing other things.
A trader whose insight is primarily responsible for driving that same return on $2B in assets is already very rich or will very quickly become so. Beating the market with that kind of capital requires an entire infrastructure devoted to trading and execution just to make the trades with minimal market movement and signalling, let alone maintaining alpha on it. Not all people capable of beating the market can do so in a manner that is actually worth their own time, because the scale can be astronomically different.
The key point of the wager is that the bettor must select the funds at a point in time and bet only on the future returns.
Gazing back into the history of thousands of funds to find a few funds who have beaten the S&P 500 over 25 years is interesting, but is far a guarantee that those funds will beat going forward.
Such a terrible fund that it is what almost everyone bases their performance off of.