There is an old saying in finance that Financial Zen very much loves: “Your portfolio is like a bar of soap. The more you touch it, the less you have.”
But taking action helps, right? Right!?
Usually. Just not with your money.
In almost every other area of life, hard work, constant tweaking, and active management lead to better results. If we want a cleaner house, we scrub more. If we want a better business, we optimize more.
But the stock market is the one place where activity actively destroys wealth.
When the geopolitical landscape gets shaky, or the financial headlines scream about impending doom, or a “talking head” with a crystal ball predicts global, decades-long downturns, our natural instinct is to do something.
We try to turn the “faucet” up and down. We move a little to cash. We sell the laggards. We try to time the dip. It feels responsible. It feels like we are protecting ourselves.
But the math tells a brutal story: Tinkering almost guarantees underperformance.
Every time we touch the portfolio, we pay a hidden tax. We pay transaction costs, we trigger capital gains taxes, and – most dangerously – we get out at bottoms (usually imagined ones) and miss the rebounds.
In investing, inaction is a superpower because it’s often the hardest thing to do.
The ultimate financial flex isn’t successfully predicting a market drop. It’s seeing the terrifying headline, looking at your fully automated, diversified, buy-and-hold portfolio, and deciding to go play outside instead.
Set the system. Automate the rebalancing. And then, put the soap down.