Emily Lyons is the first to admit she knows next to nothing about investing. The chief executive officer of Femme Fatale Media Group Inc., an event staffing agency in Toronto, may have recently contributed about $50,000 into her registered retirement savings plan and tax-free savings accounts through her bank, but don't ask her to define "expense ratio" or "asset allocation."
"I bought a book after I started investing, but I never read it," she admits.
She's not at all interested in moving her money around, or in buying, selling or trading. She says she doesn't have the time or the interest to do more than set up a simple portfolio of mutual funds and let it ride.
More by accident than design, it's a "set and forget" strategy all the way.
But perhaps there is nothing wrong with that. While no one is saying that being financially uninformed is a fiscally savvy move, Ms. Lyons may have something going for her: Investing laziness can pay off.
According to years of academic research, the old adage "buy and hold" may work better in the long run than active investing, particularly if an investor has 10 years or more to play with.
That's partly because humans are just so, well, human. We tend to buy when the markets are running hot and dump stocks when they drop. Even a few small mishaps can have a huge impact on a portfolio's performance in the long run.
Consider a classic study from the IESE Business School in Barcelona that analyzed the Dow Jones industrial average from 1900 to 2006. It set out to determine whether investors reap rewards steadily over time, or if they benefit more by taking advantage of sudden dips and swings.
Javier Estrada, the researcher, found that $100 invested in 1900 would have been worth $25,746 by the end of the study. But if someone had sold at the wrong time and missed the 10 most bullish days, the value would have been just $9,008.
Granted, missing the 10 worst days would have meant a portfolio worth a whopping $78,781, but how could anyone know when those 10 direst days will come? Or, as Mr. Estrada put it, "Given that 10 days represent 0.03 per cent of the days in the sample, the odds against successful market timing are staggering."
Indeed, ricocheting market volatility over the past few years has resulted in meagre results for active investors.
In the United States, Merrill Lynch recently stated that this year's first quarter was the worst in 18 years when it comes to judging the performance of U.S. equity funds against benchmarks. Only 6 per cent of large-cap funds beat their index. This is no blip, either. In 2014, 86 per cent of active large-cap managers in the United States did worse than their benchmarks, according to one S&P Dow Jones indices scorecard.
Closer to home, rebounding 2014 markets meant a mere 26.47 per cent of Canadian equity funds outperformed the S&P/TSX composite. Even considering a five-year investment horizon, the results weren't much better. The data showed the losing pattern across all categories, with the majority of active managers underperforming.
And don't forget the fees being paid for the privilege of losing that money. Canadians pay some of the highest in the world.
"When you think about it, it's really hard to consistently beat the index. Particularly when there are heavy costs associated with trying to do so, you're almost guaranteed failure," says Neil Gross, executive director of the Canadian Foundation for Advancement of Investor Rights.
The message seems to be sinking in. No more stock picking and technical analysis for many Canadians. Books titled The Gone Fishin' Portfolio and Stop Over-Thinking Your Money! line store shelves. Meanwhile, exchange-traded funds – low-fee, diversified investment options that track broad and specific indexes – are gaining in popularity.
As Canadians begin to understand that passive investing produces results over the long term, more will turn to simpler strategy models, says Michael Katchen, founder and CEO of robo-adviser Wealthsimple Inc. in Toronto.
As far as he's concerned, the wave is already coming. In just 18 months since his company hung its shingle, it has 15,000 customers and about a half-billion dollars under management in Canada. Clients are young – about 80 per cent under the age of 40 – and willing to pay the 0.5-per-cent management fee.
"Set it and forget it, this is what we do," he says.
Not that paying for investing advice is a bad idea, though, Mr. Gross says. For one thing, professionals can help ensure investors don't make rookie mistakes and, say, cash in their investments during a temporary market downturn. A good adviser will help keep the portfolio diversified and will rebalance it when needed.
"You'll notice that none of those things have to do with stock picking or trying to beat the market," he says. "They all have to do with just being a disciplined investor."