Millions of Schwab customers cannot access their accounts due to a website glitch. Maybe Schwab is … [+]
As I write this, the stock market is having its worst day since the COVID-induced sell-off in 2020, and the past week hasn’t been great for the market either. While trying to pinpoint the exact reasons for market movements is often a fool’s errand (or as Jesse Livermore famously said, “It is not good to be too curious about all the reasons behind price movements”), the recent declines seem to be due to concerns that the Fed has kept rates too high for too long, along with weak earnings reports from the tech sector.
Amid today’s market turmoil, Charles Schwab’s website isn’t working for customers. If you try to log in, you’re greeted with this message: “Due to a technical issue, some clients may have difficulty logging in to Schwab platforms. Please accept our apologies as our teams work to resolve the issue as quickly as possible.” Oof. My first thought was that this must be one of the worst days for their website to be down. But my second thought was, maybe Schwab is doing its customers a favor by keeping them away from their accounts when the market is going wild because doing nothing is usually the best investment strategy.
One of my favorite studies highlighting the benefits of inactivity is “Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment.” The study examined data from over 35,000 investment accounts at a large discount brokerage over seven years and found that male investors trailed females by about 1 percent per year. The data analysis showed that both genders were equally bad at picking stocks; on average, stocks bought by both genders performed worse than stocks they sold. So, why did women fare better? Because they traded 45 percent less often. This makes sense. If more trading leads to lower returns, then trading less should mean better returns, which is precisely what the study found.
Why do men trade more? The researchers concluded that men traded more than women because they were more overconfident. For example, single women reported having less investment experience than single men. Yet, the data showed that single women had the best returns, followed by married women, then married men, with single men bringing up the rear. As a guy, I find this sobering. I guess I should be thankful that I’m married!
A study by Fidelity supports the “Boys Will Be Boys” findings. Examining five million customer accounts over ten years, the study found that women investors outperformed men, even though only 19 percent of the women surveyed said they felt confident about selecting investments.
Even though female investors tend to outperform males, they shouldn’t be too smug because they underperform dead people. Yes, dead people. An internal review by Fidelity of client accounts that posted the best returns between 2003 and 2013 found that “the best investors were either dead or inactive—the people who switched jobs and ‘forgot’ about an old 401(k), or the people who died and the assets were frozen while the estate handled the assets.” The lesson is clear: More activity often leads to lower returns.
Conclusion
In the fast-paced investing world, the best strategy is usually to do nothing. The Schwab website outage may have inadvertently done investors a favor by preventing them from making impulsive trades during market volatility. Whether you are a Schwab customer or not, a best practice is to embrace a strategy of thoughtful patience, remember the power of staying the course, and let your investments grow without unnecessary interference. Sometimes, the best thing you can do for your portfolio is to take a deep breath, step back, and let time work its magic. In the fast-paced world of finance, slowing down can often be the key to moving forward.