The Investment Strategy That Has a Surprisingly Strong Track Record

Investing creates a strange incentive.

The person making the most decisions often looks like the person doing the most work.

Charts everywhere.

Four monitors.

Market forecasts.

Buying.

Selling.

Rebalancing.

News alerts.

It feels sophisticated.

Meanwhile, somebody who builds a diversified portfolio and barely touches it for years can look almost irresponsible.

The evidence tells a more complicated story.

More trading has historically meant worse results for many investors

One of the best-known studies of individual investor behaviour examined 66,465 brokerage households.

Brad Barber and Terrance Odean found that the households trading most frequently earned an annual return of approximately 11.4%, while the market returned about 17.9% during the same period (Barber & Odean, 2000).

The most active investors therefore underperformed the market by roughly 6.5 percentage points per year.

That does not mean every trade is bad.

It does not mean nobody can outperform through active investing.

It means there is no reason to assume that making more decisions produces a better result.

Often, those decisions create additional costs and additional opportunities to be wrong.

Even professionals struggle to beat simple benchmarks

Perhaps the problem is that ordinary investors are not professionals.

Unfortunately, professionals find the challenge difficult too.

The SPIVA Europe scorecard compares actively managed investment funds with relevant market benchmarks.

In 2025, 71% of euro-denominated Global Equity funds underperformed the S&P World index. In 18 of the 21 equity categories examined, the majority of active funds underperformed their benchmark (S&P Dow Jones Indices, 2026). S&P Global

This does not mean active management has no value.

Some managers outperform.

Some investment strategies cannot be reproduced by simply tracking an index.

But persistent outperformance is difficult enough that investors should be sceptical of anyone presenting market-beating returns as something routine.

It is not.

What happens when you zoom out?

The UBS Global Investment Returns Yearbook provides one of the longest historical views available, using data stretching back to 1900.

Across countries with continuous investment histories, equities have outperformed bonds, short-term bills and inflation over the very long term.

In the United States, $1 invested in equities in 1900 grew to $124,854 in nominal terms by the end of 2025. The equivalent figures were $284 for long-term bonds and $69 for Treasury bills (Dimson et al., 2026). Global

That statistic sounds almost absurd.

It also needs context.

Nobody invests for 125 years.

Equity investors experienced wars, crashes, inflation, recessions, bubbles and long periods of disappointing performance.

The lesson is not that stocks always rise.

They do not.

The lesson is that accepting uncertainty through ownership of productive assets has historically been rewarded over very long horizons.

Risk is the price, not a malfunction

Markets falling is not evidence that markets are broken.

Volatility is part of what investors accept in exchange for the possibility of higher long-term returns.

A portfolio that can generate attractive returns without ever declining significantly would be wonderful.

It is also not how financial markets normally work.

This becomes important because many investors discover their real tolerance for risk only after the market falls.

A 30-year-old can confidently describe themselves as “aggressive” when markets are rising.

The real test arrives when the portfolio is down 25%.

That is why the best investment strategy is not necessarily the portfolio with the highest theoretical expected return.

It is a portfolio whose risk the investor can actually tolerate long enough for the strategy to work.

Holding is still a decision

Doing nothing sounds passive.

In investing, it can be an active choice.

If your financial situation has changed, your strategy may need to change too.

A new house purchase, a shorter investment horizon, reduced income or a genuine change in risk capacity are all meaningful information.

A frightening headline is not necessarily meaningful information about a 30-year plan.

That distinction is crucial.

Long-term investing is not about blindly refusing to sell anything forever.

It is about separating changes in your life from changes in market mood.

Diversification, reasonable costs and patience are not exciting investment innovations.

They have simply survived an enormous amount of financial history.

Sometimes sophistication means knowing when to act.

Sometimes it means knowing when not to.

References

Barber, B. M., & Odean, T. (2000). Trading is hazardous to your wealth: The common stock investment performance of individual investors. The Journal of Finance, 55(2), 773–806.

Dimson, E., Marsh, P., & Staunton, M. (2026). Global Investment Returns Yearbook 2026. UBS.

S&P Dow Jones Indices. (2026). SPIVA Europe Year-End 2025.