Jul 23 • 3 min read
The 50-year study on doing nothing
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We live in a culture obsessed with doing something. Track your sleep. Optimize your workouts. Measure everything, always. Naturally, we bring that same mentality to our money, which is understandable given the stakes. But when it comes to your portfolio, is all that activity actually helping? New research offers a surprisingly clear answer. In today's email:
As always, I'll wrap up with a few of the best retirement and investing articles I read in the past week. *** Before we dive in, did you catch this week's podcast? 👇 Buffett's Case for Doing NothingBack in 1996, Warren Buffett made the argument in memorable fashion: "We continue to make more money when snoring than when active. Inactivity strikes us as intelligent behavior." He was talking about Berkshire's portfolio of publicly traded stocks, which had barely changed. And while I prefer the broad diversification of a market-like portfolio over picking individual stocks, the underlying principle is the same: Once you own productive assets through a sensible strategy, "doing nothing" might be the best strategy of all. But in our optimization-obsessed culture, inactivity sounds backward. Maybe even negligent. Which is why I found the new research study from Hendrik Bessembinder so timely. Putting "Do Nothing" to the TestIn his new paper, Bessembinder built "do-nothing portfolios" of S&P 500 companies and left them untouched, even after companies were removed from the index. The result? From 1971 through 2025, the value-weighted do-nothing portfolio compounded at 11.3% per year — nearly identical to the S&P 500's 11.2% annualized return over the same period. No trading. No swapping in the newest index additions. No reacting to headlines. Just owning. But before anyone applies this lesson to a handful of favorite stocks, the study comes with an important catch: Doing nothing only worked because the portfolios were broadly diversified from day one. The more concentrated the portfolio, Bessembinder found, the less dependable the outcome. At the extreme, a randomly selected single-stock portfolio underperformed the S&P 500 over rolling ten-year periods 58.5% of the time. In short, it's the diversification that makes doing nothing dependable. Why It's So HardTo be clear, doing nothing sounds much easier than it actually is. Thanks to our innate preference for action (plus a media machine that profits from urgency) investors find it incredibly difficult to leave a sensible strategy alone. We're constantly encouraged to react to headlines, predictions, elections, recession fears, and market declines. Ironically, that behavior is exactly why so many investors underperform their own investments — the infamous "behavior gap." History shows that capturing the market's long-term return requires nothing more than owning it... and then continuing to own it. What This Means for Your RetirementOnce the important decisions have been made (e.g., a globally diversified portfolio, a sustainable spending plan, an established "war chest" of cash and bonds), the research suggests that additional activity is more likely to hurt than help. But that doesn't mean neglecting your plan. Rebalancing, tax-gain and loss harvesting, refilling your war chest, coordinating tax-efficient withdrawals, multi-year roth conversions. Those are examples thoughtful maintenance, not reactive trading. The difference is what's driving the action. Maintenance is driven by your plan and your goals. Reactive trading is driven by headlines. And in retirement, this distinction matters more than ever. When you're drawing income from your portfolio, an ill-timed overhaul doesn't just dent your returns, it can put stress on the plan those returns are meant to support. Bottom LineChoosing to do nothing, when done intelligently, isn't neglect. It's the disciplined decision not to interrupt your portfolio’s long-term compounding potential. And it is not a decision you make only once. It's an active decision you'll have to make whenever markets fall, headlines become alarming, or another investor appears to be getting rich from the latest trend. And it may be the most important one of all, because it's what allows the greatest lever available to investors (time) to work its magic. 📚 What I've Been Reading
Thank you for reading! Please reply to this email with comments, questions, and/or feedback. Stay wealthy, Taylor Schulte, CFP® |