Richards: The Best Investment May Be What You Can Let Go Of
Certified financial planner and author of Behavior Gap, Carl Richards, illustrated with a hand-drawn Venn diagram: the best investment may be what you can let go of. The two circles are labeled "Average Investment" and "Good Behavior," with the intersection shaded black, pointing to "Outperforming 99% of Neighbors." He is a columnist for The New York Times' Sketch Guy and discusses in his new book how to rewrite wealth strategies with simple sketches.
He has explained the same diagram multiple times. To Barry Ritholtz, he stated that the industry's problem is not that average investments underperform average investments, but that investors underperform the investments they already hold. Research led him to conclude that having mediocre investments and behaving correctly can outperform 99% of neighbors. He defines the behavior gap as the difference between time-weighted returns and money-weighted returns—timing trades rewrites fund performance into personal performance. Early clients switching between two funds they could have held ended up underperforming both, which was the moment he considered changing careers.
He wrote in his column that Mark Twain cared more about getting the principal back than the rate of return; during years when indices returned about 8% to 13% annually, many experienced far lower actual returns because they bought at peaks and sold at lows while chasing the highest returns. The principle is to first ensure that you do not lose the money you can keep, shifting focus from seeking a magical 10% to controllable savings and planning. Recently, he reiterated in a podcast that work is to prevent oneself from interfering with the compounding ability of the portfolio; time is the variable.
This is not the same arena as venture capital power laws. Public market indices turn average investments into purchasable products; venture capital profits are concentrated among the top 1% and 5% of funds. Richards discusses neighbor comparisons and manageable holdings, not quota lists. The hand-drawn diagram simplifies a complex product catalog into the intersection of two circles.
The market mechanism shifts attention from selection to behavior. Buying is about less trading and fewer regrets in household accounts; selling is about planners and index funds writing "let it be" as a service. Funds remain in low-turnover holdings for compounding rather than flowing to high-frequency trading commissions. Beneficiaries are institutions that charge based on time-weighted or asset-based fees and do not encourage trading; those under pressure are sales teams relying on turnover for commissions. Event-driven is about old charts and new posts, not new product fundraising.
Average investments plus not moving around are sufficient to win in the neighbor race. For assets that require constant monitoring to hold, exit the behavior circle first.
Source: Public Information
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Richards shifts the investment issue from securities research to self-management. The shaded area of the Venn diagram is not an alpha factory but rather about doing less. Money-weighted returns underperform time-weighted returns because people sign at points of volatility. Mediocre indices become containers for "good behavior" precisely because they do not invite daily decision-making. By using neighbors as a benchmark, he changes the competition from Wall Street rankings to neighborhood standings, reducing the demand for top funds.
The capital path is low-turnover products absorbing household savings. Index and target-date funds rely on "let it go" sales, with advisory fees shifting from trading commissions to asset balances. The larger the behavior gap, the more it proves that the middle layer once profited from creating actions. Concurrent venture capital articles emphasize that 1% takes 57% of profits, which is another quota game that cannot be let go of; Richards' readers are not on that list. Both markets share the term "returns," but the functions are entirely different.
The analogy is that compliance in fitness is greater than training plans, and in diet, a long-term executable menu is superior to an optimal menu. The financial planning industry's phase is controlling behavioral interfaces. Those who can make clients look at their accounts less can bring time-weighted returns closer to product promotions. Active stock picking and thematic rotation lie outside the intersection: they may be good investments but are not containers for good behavior.
Structural change is a transfer of pricing power. The mechanism is that when products are sufficiently average, the variables determining returns are only holding time and whether one has been persuaded to exit midway. Sales power shifts from "I found something better" to "I help you not move." Investments that can be let go of are the ones that are effective for most neighbors.
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- What can be let go of is the investment effective for most people.
- People first underperform what they already hold, then underperform the market.
- Average investments plus not moving around are sufficient to win in the neighbor race.