Retirement is supposed to give people the gift of time. For investors, however, more hours in the day can backfire.
A recent study using Swedish tax data finds retirees become far more active in the stock market, but their portfolios perform worse.
Freed from the time pressures of work, retirees increase trading by 7.7 per cent. Their portfolios become more diversified, holding 8.2 per cent more stocks, and they take a more cautious approach to borrowing.
More stocks and less leverage might suggest that retirees are trying to be more informed, careful and engaged investors. However, the extra effort doesn’t pay off. Even with extra time to focus on the markets, retirees’ portfolios perform worse than before.
In other words, spending more hours analysing and buying stocks does not result in smarter investment decisions.
It might seem paradoxical, but the results are hardly surprising. Behavioural finance has long shown that more trading usually reduces returns, as emotional reactions and overconfidence creep in.
Retirees may also be falling prey to the so-called work ethic fallacy, the belief that more effort automatically produces better results. The simple, boring reality is that buying and holding a diversified portfolio routinely outperforms even the best-intentioned tinkering.
Retirement may deliver more time, but the market continues to favour those who mostly leave it alone.