The Dead Fidelity Investors

One of the most famous pieces of research ever attributed to Fidelity Investments looked at client accounts over the period 2003-2013. Coming on the heels of the dot-com crash, and despite the Global Financial Crisis (GFC) midway through, this decade-plus period wasn’t bad for U.S. stocks, with the S&P delivering returns of about 7% annualized. Fidelity wanted to understand the characteristics of the portfolios that had the best returns. What, if anything, did they have in common?

This Fidelity research found a small sample of accounts that appeared to have handily outperformed the broad market over that time frame. The outperformance was concentrated in accounts that simply did not transact much—they exhibited all of the traits of patient, long-term-minded investors who do not let the emotions of a volatile stock market fool them into needlessly trading in and out of stocks. Keep in mind that halfway through the period was the GFC, during which the market melted down (the S&P was down more than 38% in 2008). It was difficult to hold tight through those turbulent days, but not for these shining Fidelity account holders!

The reason these investors were so patient, calm, and long-term-minded, the story goes, is that the account holders were dead.

Either that, or they had forgotten they had the account in the first place.

“Never let the truth get in the way of a good story.” —Mark Twain

Here’s the problem with the Fidelity study, however: It doesn’t exist.

There’s no such research documented on Fidelity’s website. I haven’t been able to locate the primary source material anywhere on the Internet. Marketwatch even contacted Fidelity in 2015 to ask about this famous study, only to discover that “No one at Fidelity can recall any such research, public or internal, and it’s not like they would forget a study showing that their best investors were deceased.”

Fidelity’s famous story about its dead investors outperforming is a finance urban legend. It is a compelling story, though.

It seems that about half of the articles, columns, and blogs online take the study at face value, despite the lack of a primary source. The other half understand that this mythical “dead investor” study isn’t real, but point out that the lessons it imparts—having patience and a long-term perspective, avoiding over-trading, keeping commissions and taxes low—are valid.

As one blog post put it, “The Fidelity ‘dead accounts’ study is fake, not wrong.” Morningstar echoed that sentiment: “Fidelity’s ‘study’ rings true, whether it exists or not.”

The study’s conclusions are worthy—so who cares if the study is real?

I am a staunch believer in patient, taxes-and-fees-conscious long-term investing, and I believe emotional reactions to what is often normal market volatility can cause damage to investor portfolios.

But having read a dozen or so of the articles that reference this “study,” it irks me that they almost always couch it in these terms: We’d do well to act more like the dead investors of that Fidelity study. For example:

• “If you want good investment performance, forget you have an account.” —Business Insider
• “If you want to be an above-average investor, it may pay to play dead. That was the conclusion of a study by US fund manager Fidelity.” —Intelligent Investor
• “‘Set and forget’ investing isn’t sexy, but it works. In fact, lazy investing is so effective, a study from Fidelity found that the best performing investors had either forgotten about their accounts or even crazier—they were dead.” —Lifehacker

And so forth—in most cases, the deceased investors are held up as a righteous example worthy of following.

I’d like to propose a counterpoint, however. Because it seems to me that most every analysis of this story totally glosses over a very crucial point: If you’re dead, who cares about having the highest returns?!

Having a large portfolio but being unable to use it seems exactly backwards. Outside of perhaps the professional investor class, the point of investing, after all, is usually not to generate the highest possible returns. That is a welcomed outcome, of course, but it’s not the point. The point, I would think, is to grow your money so you can do more with it.

Yes, estate planning is important. Yes, setting up your kids (and grandkids) or charity/causes are worthy and noble goals. Yes, overspending and/or miscalculating your withdrawal rate can spell trouble in retirement.

My point is, generating good investment returns should be a tool to help you achieve more with your money. It shouldn’t be an end in itself. I feel slightly absurd typing it, but you can’t enjoy those returns if you’re dead.

—Brian Richards