what is a hands off investor 
a hands off investor prefers to set an investment portfolio and make only minor changes for a long period of time many hands off investors use index funds or target date funds which make only small and slow changes to their holdings and therefore do not require much monitoring understanding a hands off investora hands off investment strategy is well suited to many retail investors who may not have the time needed to routinely monitor and research their investments hands on active management requires investors to continuously keep up to date on the positions that they hold this often requires several hours of research per week active managers believe that by doing this work they can earn higher than average returns on their investments a hands off strategy is not necessarily underperforming many investors believe in an indexing approach which posits that sticking with a well diversified portfolio over the long term is the key to wealth since index funds often have very low expense ratios hands off investors often enjoy a built in advantage over active traders who pay more in trading commissions lose out to the bid ask spread and incur the higher tax rates on short term capital gains and nonqualified dividends benefits and drawbacks of being a hands off investoran ongoing study that compares investor returns to market returns dalbar s quantitative analysis of investor behavior affirms the benefits of a hands off approach over the 20 years between 1997 and 2017 the average equity investor earned 5 29 per year while the s p 500 index gained 7 20 per year on a hypothetical 100 000 investment the average investor would have earned approximately 120 000 less than a hands off investor holding the s p 500 the average fixed income investor has done even worse trailing the bloomberg u s aggregate index by 4 54 percentage points per year and making approximately 155 000 less over 20 years special considerationsthe reasons for investor underperformance are myriad but attempting to time the market and behavioral biases like loss aversion are primary contributors dalbar correctly points out that an index is always in the market and always fully invested while investors may be on the sidelines waiting for the right moment to return to the market hands off investors can benefit from the price return of their investment but also from the reinvestment of dividends for mutual fund investors this approach enables investors to purchase more fund shares with their dividend proceeds hands off investors that are not in a target date fund that adjusts its allocation over time could be taking on additional risk as they approach retirement without periodic rebalancing a portfolio could become overweight in riskier equity investments which could destroy wealth should a bear market occur in the last five to 10 years prior to retirement the hands off investor will need a much more conservative portfolio in retirement that conserves capital with assets like cash and high quality bonds and will likely need to engage in significant trading to achieve this 