Second, resisting the temptation to add new stocks to the basket (or remove them) when they’re added to the index helps maintain that cash flow and reduces the need to agonize over the decision to buy or sell a single firm. He attributed that success to a few factors.įor one, holding cash in a portfolio (rather than being 100% invested) can insulate against losses and allow for new investments when necessary.
He determined that “the Do Nothing Portfolio would have acquitted itself very well over the full 30-year period, earning a slightly higher return than the S&P 500 with less volatility,” he wrote. Ptak was able to replicate his results over two more 10-year periods. He says this cash helped cushion the blow of declines in the market without dragging too much on returns. In the index itself, on the other hand, stocks were added and removed.Īt the end of the decade, the portfolio also equaled the S&P 500’s performance despite holding a considerable amount of cash, which Ptak added to the basket as companies in the S&P were acquired over the course of the years. That’s especially surprising, Ptak wrote in a blog post, because his portfolio wasn’t rebalanced or adjusted as the S&P 500 changed. The basket generated a 12.2% return over the 10-year period between 20 - nearly exactly the same as the performance of the entire S&P 500 index over the same time. Luckily, Ptak’s “Do Nothing Portfolio” - which was based on all of the S&P’s holdings as of the end of March 2013 - reveals an easier way to beat the market. How ‘doing nothing’ performs in the stock market There may be other fees associated with trading. residents 18+ and subject to account approval. For bolder investors, it can be equally tempting to hunt for bargains when asset prices are falling. It’s an especially important lesson for investors right now, when markets are volatile and the economic headlines are especially scary ( inflation! Interest rate hikes! An earnings recession!), and it feels to many like the next crash could be right around the corner.įor nervous investors, there’s a lot of temptation to move money out of poorly performing assets and into safer ones - or out of the market entirely. It’s the idea that over the long term, setting up your portfolio and letting it grow will leave you better off than making frequent changes, chasing short-term gains or reacting to news headlines. The “do nothing” approach to investing isn’t new.
His discovery? The hands-off method performed just as well, if not better, than the entire index. That’s the idea behind a recent analysis by Morningstar chief ratings officer Jeffrey Ptak, who created (and analyzed) a model portfolio of S&P 500 companies that a hypothetical investor had been holding - and not touching, except to reinvest dividends - for the last decade. The best way to make money in the stock market may be.
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