Key to Maximizing Returns? Be More Dead!

Key to Maximizing Returns? Be More Dead

I know that title is quite dramatic, but it is also really interesting. There is this famous study from years ago that Fidelity put on. They reviewed thousands of accounts and looked at the returns in each. They came to the anecdotal conclusion that the best performing accounts belonged to, you guessed it, deceased account holders. It also went on to put people who forgot their passwords in the same category. I find that study truly remarkable and yet 100% logical.

You Can’t Panic If You’re Dead

The thesis is simple. Dead people don’t panic sell or buy, they don’t time the market, and they allow their investments to remain compounding uninterrupted. These combined factors are very telling and lead to superior returns than the market chasers, or nervous Nellies. They are emotionless, because well, they are no longer living, and thus don’t overthink anything. They also don’t get excited when markets are way up and second guess anything, again because they are dead.

When I first heard about this study my initial thought was I fully believe it. In my job as an advisor I witness similar experiences on a regular basis. I have clients who like to be very involved in their portfolios, hopping on Zooms, making market calls, telling us areas they want to invest in, and constantly tinkering. Then I have those clients who, when they come in for their check ups, barely discuss their investments, mention they haven’t looked at anything in a while, and truly put full trust and faith into us advisors. I can tell you categorically the super connected, intelligent, informed, and engaged investors fare much worse than the client who is completely detached.

Markets Go Up and Down

I’ve written about this before, where I suggested that detaching and not looking at your investments can be a great strategy for many. This way our emotions don’t screw with us and force our fight or flight biases to creep in. I know it is fun to make bets, or share your opinion on what is going on in the markets and economy. Sadly, although we will listen to you 100% of the time, the markets will listen to you 0% of the time. They simply don’t care about your fears, concerns, opinion, or analysis. Rather, they generally do their thing pretty predictably.

What do I mean by predictably. The markets average roughly 10% a year. The markets are also historically up 3 out of 4 years. This is simply what they do. If you know that in advance, why are we surprised when they are down. Why do we get overly anxious when they are down intra year, which I read the other day happens 100% of the years. I’ll repeat that. Expect there to be a pullback in your investment portfolio 100% of the years you are investing. As the old saying goes, if you can’t stand the heat, get out of the kitchen. There is simply no way of getting around it. You invest in the markets, ups and downs happen. The bigger question is what will you do about it.

Here is the actual reality of what I suggest. Being completely detached is likely a bad idea. You should keep some pulse on your investments, but for most people an arm’s length relationship makes the most sense. Put your trust in someone, or create the discipline yourself. Don’t watch the markets and live and die by some talking head on some market watch show. Do make sure you are allocated and aligned with your goals. Changes should be occasional and not reactive. They should be founded in research and represent a strategic change you are willing to commit to for an extended period of time. Most importantly you should be comfortable in all markets, whatever that takes.

In conclusion, you don’t have to be dead to have great returns, but you may have to act like it in many instances. As always, hope you found this insightful, and stay wealthy, healthy, and happy!