The Surprising Truth About the Fidelity "Dead Accounts" Study and Portfolio Performance

The Surprising Truth About the Fidelity "Dead Accounts" Study and Portfolio Performance

Introduction:

In the world of finance, there are often stories that capture our attention and make us question the conventional wisdom. One such story is the apocryphal Fidelity "dead accounts" study, which claimed that accounts belonging to deceased individuals consistently outperformed all other strategies. However, upon closer examination, it becomes clear that this study is nothing more than a fabrication. While it is important to debunk myths and separate fact from fiction, it is equally crucial to consider the possibility that conventional wisdom may have some truth to it. In this article, we will explore the Fidelity study, analyze the performance of different investment portfolios, and offer actionable advice for investors.

The Fidelity Study: Fact or Fiction?

The story goes that Fidelity, a renowned financial institution, conducted a study to identify the characteristics shared by accounts with the highest returns. After months of analysis, they supposedly discovered that accounts belonging to deceased individuals or those who had forgotten about their accounts yielded the best results. However, this narrative raises several questions. How many accounts could Fidelity possibly have in the names of dead people? If they could easily identify these accounts, why hadn't they notified the appropriate authorities? These inconsistencies point to the fact that the Fidelity study is nothing more than a fabrication.

Examining Portfolio Performance:

To delve deeper into the performance of different investment portfolios, we turn to Morningstar's portfolio tool. By analyzing the returns of two portfolios, namely a simple 60/40 portfolio using the Vanguard 500 (VFINX) and Vanguard Total Bond Market (VBMFX), and a Boglehead 3-fund portfolio with a 12% allocation to Vanguard Total International Stock (VGTSX), we can gain valuable insights.

The Results:

For both portfolios, we considered various rebalancing frequencies, ranging from monthly to no rebalancing at all. The goal was to assess the impact of active management on portfolio performance. Surprisingly, even with different rebalancing strategies, the results consistently favored the portfolios with a passive approach. This finding challenges the notion that active management always leads to superior returns.

Actionable Advice for Investors:

• 1. Embrace Passive Investing: The results of our analysis strongly indicate that passive investing, which involves maintaining a diversified portfolio and holding investments for the long term, can be a successful strategy. By avoiding frequent trading and unnecessary rebalancing, investors can potentially achieve higher long-term returns.

• 2. Focus on Asset Allocation: Rather than trying to time the market or pick individual stocks, consider allocating your investments across different asset classes. This approach helps manage risk and takes advantage of the potential growth opportunities offered by different sectors.

• 3. Stay Informed and Adapt: While passive investing may be a sound strategy, it is important to stay informed about market trends and adapt your portfolio accordingly. Regularly review your asset allocation and make adjustments based on changing market conditions and your financial goals.

Conclusion:

The Fidelity "dead accounts" study, which claimed that deceased individuals' accounts outperformed all others, is nothing more than a myth. However, this does not mean that all conventional wisdom should be dismissed. Through our analysis of different investment portfolios, we found that passive investing can lead to favorable long-term returns. By embracing passive investing, focusing on asset allocation, and staying informed, investors can make informed decisions and potentially achieve their financial goals.

Disclaimer: The information provided in this article is for educational purposes only and should not be considered as financial advice. Investing involves risks, and individuals should consult a financial advisor before making any investment decisions.