The Hidden Virtues Of Ignoring The Market

Practice makes perfect, as the saying goes. We are brought up to believe that succeeding at anything means paying a lot of attention.

And that makes a lot of sense in most endeavors. After all, natural ability and talent will only take you so far. Even the best-of-the-best know that they got that way by working at it.

Where the logic of doing more falls apart, however, is in the investment business. The problem is pretty simple: Most of us are just not going to spend 70 hours a week trading our accounts.

Think about it. If you pay attention to your retirement investments at all, how much time do you spend on it, added up? A Saturday morning once a month? Ten minutes a day logged into an online brokerage account?

Now imagine the lives of the real traders out there, the folks who make a living doing this. They are up at the crack of dawn and shuffling down to a subway train, then off to some bank or Wall Street itself.

From market open to market close they are glued to a screen, maybe five or six at once. They have trades valued in the millions riding in all directions at once. Some last for a day or two. Some run for a week or a month. Some last mere seconds, a blip on a hedge fund spreadsheet.

All of this is happening in real time, with real stress on the actual trader pushing the buttons. Despite all that attention and time, traders have a really, really hard time keeping up.

Why is that? Because they are the market. All of those buys and sells, added together, create what at the end of the trading day we call “the market” and its resulting performance.

Some number of them got it right, at least for today. Some number of them got it wrong. The difference creates the price of each company traded.

The case for ignoring the market

You get the best results over time by ignoring all this activity. Face it, you aren’t getting up at dawn to prepare for a long, difficult day of trying to outguess thousands of like-minded traders. You have a job and a family and other things to do.

Yet you can get that same market value each and every day through an index fund. Over time, research shows, just owning a selection of asset classes determines most of your return, not trading or trying to get an edge.

In fact, the more you ignore the market, the easier it gets. No longer tempted to “take action,” you instead simply review your holdings once a month or less. If your portfolio is out of balance, you rebalance and move on.

No muss, no fuss, and definitely no stress. Not coincidentally, you also get the best possible return at the lowest possible cost, both to your wallet and your mental health. It’s a win-win that pays off big in retirement.