So how do you get better returns in your retirement account? Answer: Pay as little attention to it as possible.
This was according to a 2014 article in Business Insider based on the alleged study done by Fidelity Investments. In the article, there was a quote that said that "people who had forgotten that they had accounts outperformed everyone else." Fidelity has received inquiries about the study ever since, but Fidelity had never produced such a study. But Fidelity has actually done a very interesting study after the stock market collapsed in 2008 and early 2009.
The company noticed that 61,200 401(k) account holders had sold all of their stock. So the company started tracking them to see whether that move would pay off. Through the end of 2015, their account balances rose by a little more than 27%, including new contributions. People who had at least some stock exposure, however, saw their accounts jump 158%.
According to the study, the people who stuck with the market, had an average account balance of $176,500. They had $82,000 more than the people who got rid of all their stock. Over a 20 to 30 year period of time, $82,000 plus compounding is a substantial amount of money to lose out on in your retirement.
Emotions tied to the market can absolutely wreak havoc to your finances. So while the study never existed where the best returns were with individuals who forgot and did nothing with their account, from my experience, there is some truth with this. The best results I've seen from investors over the years are from people who did not fiddle with their accounts, whether the market was going up or down.
People who fiddle too much are unknowingly implementing the “bar of soap” strategy. The more they handle it, the smaller it gets. Listen to my full podcast for more investment advice.
Date Posted: 08/19/2016 Advice provided in this article is meant for educational purposes only and financial education is important to us. Before making decisions regarding your personal financial situation, please consult an advisor or conduct your own due diligence. If you would like to discuss your Retirement Income Plan with an HCM Wealth Advisor, please give us a call – 513-598-5120. Located in Cincinnati, Ohio, we serve clients in 28 states, and we’d love to help.