I suspect that some of you haven't been tending to your investments enough lately.
Don't feel too bad. First off, late summer is best spent being outdoors, not poring over statements. And investing is one of those rare human endeavors where effort doesn't necessarily pay off anyway. Taking a hiatus on trading one's account may actually be helpful to a portfolio's returns.
An interesting piece on the DailyFinance site makes the case for sloth, to a degree.
"I am fascinated by an anecdote related recently by James O'Shaughnessy of O'Shaughnessy Asset Management," writes Daniel Solin, a wealth advisor who penned the article. "An employee who recently joined his firm told him that Fidelity had studied which customer investing accounts performed the best: They were the ones held by people who had forgotten they even had Fidelity accounts, and so did no buying or selling from them.
"When O'Shaughnessy told that tale on Bloomberg Radio to Barry Ritholtz of Ritholtz Wealth Management, Ritholtz responded that he'd noticed something similar with families fighting over inherited assets. Because of extended court battles, in some cases, the accounts couldn't be touched for 10 or 20 years: No buying new investments or selling old ones. Those families subsequently found that the period of inactivity was the time when their investments performed best."
Solin writes that a number of studies support a strategy based on inactivity. The one he found most compelling analyzed 80,000 yearly observations of institutional investment assets, accounts and returns from 1984 through 2007.
"As you can imagine, there was a lot of buying and selling over this period," he writes. "But the study concluded that portfolios of products to which money was allocated underperformed compared to the products from which assets were withdrawn. Translation: They bought losers and sold winners. The authors of the study estimated these decisions cost the plans more than $170 billion in value."
But don't toss those unopened financial statements in the trash just yet. Solin points out that neglect can only be taken so far before it gets dangerous. "Unless you periodically rebalance your portfolio by selling asset classes that have increased in value and buying those that have decreased, you will either be taking too much or too little risk. Over time, this can have serious consequences."
He concludes: "The real takeaway from the data extolling the virtues of neglect, or even abandonment, of your portfolio is that efforts to time the market, select mispriced stocks or identify the next "hot" mutual fund manager are likely to do more harm than good."
My takeaway is that there's a big difference being leaving an account alone -- that is trading less -- and ignoring that account outright. Best to never do the latter while taking a mindful approach to the former.
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The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.
The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville. The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.
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