The Value of Sloth

Are you worried that you aren’t doing enough to increase your investment performance? Perhaps all you need to do is go on a 2.5 year vacation. According to Mark Hulbert, the best performing investment newsletter over the last 5 years has not been published in the last 2.5 years. So by doing absolutely nothing it has garnered great profits. Surprisingly, this is not an isolated instance–mutual funds and individual investors who trade less often make more money. Partly because they reduce their costs and commissions, but also because the urge to always do something often leads to stupid mistakes.

Another good example of the benefits of sloth comes from investing in the S&P 500. As shown by a recent research article, you would have done better holding the original 500 companies in the S&P 500 and doing NOTHING rather than investing in the actual S&P 500 index (which adds or drops about 20 stocks each year). So even a 50 year vacation can be beneficial! And remember that the less frequently you trade, the fewer taxes you pay (because you are compounding pre-tax money–if you sell each year you compound after-tax money).

Disclosure: it has been far too long since I took a vacation!

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