The Most Successful Investors Leave Their Money Alone

Legendary investor Warren Buffett is known for advising others to hold a conservative portfolio.

“My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund,” he wrote to shareholders of his company Berkshire Hathaway earlier this year.

New data from investment adviser SigFig leads to a similar conclusion.

After analysing portfolios held by 325,000 users, the robo-adviser found something interesting: The most successful investors in the group were also the least active.

Take a look at this image from SigFig’s year-end report, which shows that the top 1% of users, “who have synced assets of $US5 million or more,” performed better in their investments than the rest:

Why?

SigFig finds that investors who trade frequently — defined as “investors who have a turnover amount equal to or greater than their portfolio value in a year” — actually see lower returns than their peers who are more hands-off.

And that same 1% of users seems to have mastered the hands-off strategy:

Granted, if your existing portfolio isn’t properly allocated for your needs, you might not find the “leaving it alone” strategy as effective as someone whose investments are appropriately diversified.

It’s worth noting, though, that these numbers lend weight to a core principle of robo-advice companies (and Buffett followers): That broad, relatively conservative investments like index funds and ETFs, if left largely alone, can be lucrative.

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