Have you ever been in a traffic jam where you go lane to lane in an attempt to keep moving? More often than not, we end up at the same red light with someone we may have passed minutes ago.
This is an example of what we call “action bias”, which is the tendency to take action, even though the action is counterintuitive to the actual goal itself.
Why this bias exists in us is not hard to understand. It goes against human intuition to do nothing. In nearly every aspect of life, the more action we take, the closer we get to our goals. This goes for our professional work, learning a new skill, getting into shape. The more time we spend on the activity, the better the results.
With investing this can pose a major problem. When markets are performing poorly like they are recently, we tend to have the urge to take action. We feel that if we take action, we can turn it around or at the very least try to. Watching your portfolio decline and doing nothing feels utterly stupid. We either want to sell out entirely or just make our portfolios more conservative in an attempt to protect our money when in reality this does the exact opposite. During these periods, if we go to cash or sell some of our growth-oriented assets for less volatile investments, we’re locking in a loss and are permanently losing our money.
Inaction vs Action
Controlling your emotions during periods of market turbulence plays a significant role in being a successful investor. It may not necessarily feel like taking action, but I’d argue it is. Staying the course when it’s emotionally difficult to do so is hardly inaction. It’s the right action. All the historical data says so.
- Brandt Butt, Investment Advisor, CIM®
Brandt is an Investment Advisor and part of an award-winning team at Endeavour Wealth Management with iA Private Wealth. Brandt’s focus is working with incorporated physicians and dentists between the ages of 35-45 who are looking to set themselves up on the right financial path in hopes of reaching a point where they are choosing to work, instead of having to. Brandt’s team delivers value through advanced financial planning solutions for incorporated professionals while working closely with their accounting and legal professionals. By doing so, Brandt’s clients’ situations are optimized which can save them hundreds of thousands in taxes each year allowing them to grow their net worth faster with the goal of reaching complete financial independence.
This information has been prepared by Brandt Butt who is an Investment Advisor for iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisor can open accounts only in the provinces in which they are registered.
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