I’m just a fan in investing. Many people would like to invest but either don’t know what to do or – worse yet – are doing something and continue to do something: tweaking, adjusting, and chasing trends.

This isn’t the way.

Studies show1 that interfering with portfolio growth is a drag on overall performance. The steps are simple:

  1. Setting up a passive portfolio
  2. Sit and do nothing
  3. There is no step three

Despite the plethora of financial advisors, gurus, and talking heads out there encouraging you to do something and chance the next thing, the idea of doing nothing has lots of support. Here’s some representative quotes:

For most—almost all—of the lifetime of an investment, you should be doing nothing about it. The bulk of the activity of investing is waiting

- Dhirendra Kumar

Patience and humility beat action and good intentions

- Jeffrey Ptak

Doing nothing is harder than it looks

-Ken Lambert

When it comes to buying and selling stocks, we are all hard-wired to do the wrong thing. Our costly cognitive biases include being overly confident in our ability to predict the future, assuming that the direction in which a stock price is currently moving will continue for some time and allowing ourselves to be far more affected by a loss than by a gain of the same amount. One of the best-known studies demonstrating our inability to trade successfully is by Dalbar, an evaluation company. Each year, Dalbar compares the investment return of the S&P 500 to that of investors trading in and out of mutual funds invested in that stock index. Inevitably the return of the investors falls far below that of the index – and the difference is significantly more than the fee charged by the mutual funds. This behavioural drag on returns also applies to trading in individual stocks. While it may be counterintuitive, all independent studies show that the more you trade, the lower your investment return will be.

- Why a do-nothing approach to investing is often the right way to go

The problem is that there are far too many people who are actively trying to persuade you otherwise [that continuous action is required]. Indeed, their livelihood depends on it. Much of the investment advice industry is focused on giving you the impression that investing consists of doing things, and investors who do more things will earn more. Somewhat counter-intuitively, this is not true for investing. Investors who think that this is true act when they shouldn’t and do worse than others. As someone said, a bored investor is a dangerous thing.

- Want to see your investments grow? Then you should do nothing

The trouble with investing is that what feels right is often wrong and what feels wrong is often right.

It’s all backwards.

- Sit and do nothing

  1. The Average Equity Fund Investor lost over one fifth of their account balance during 2022. Equity investors lost 21.17% during the year against an S&P 500 equity index that lost 18.11%. This represented an investor gap of 3.06%. (italics added) ↩