Do Without Doing
Putting in the effort, and working hard day in and day out, can often lead to desirable results. However, some investors who adopt this approach to their investment strategy often find that they quickly run out of steam in achieving success.
The Chinese saying “wei wu-wei” essentially translates into the phrase, "do without doing".
This saying conveys the lesson that, in certain aspects of life, greater activity doesn't necessarily translate into better returns. Indeed, in Taoism, students are instructed to let go of everything that they are unable to control!
To use an analogy, when you plant a tree, you choose a sunny spot with good soil and water. Apart from regular pruning, you let the tree grow.
Focus on what you can control
Interestingly, this "letting go" doesn't imply that we ought to constantly sit idle. In fact, when it comes to financial planning, insights from research suggest you should direct your efforts to the things you can control.
When thinking about your investment strategy in particular, these include taking account of your own preferences and sensitivities when choosing investment strategies, diversifying your allocation to moderate the ups and downs, being mindful of the impact of fees, and exercising discipline when emotions threaten to blow you off course.
Successful investing requires taking actions that can have a positive impact on the outcome you're looking to achieve. For instance, to maintain their desired asset allocation, investors should regularly rebalance their portfolio, which reallocates money away from strongly performing assets into the laggards.
But, please note: rebalancing is a disciplined, premeditated activity based on each person’s circumstances. It contrasts with the “busyness” of following investment trends and chasing past returns promoted through financial media.
Don’t try to beat the market
Look at the person who fitfully watches business channels on TV, or who sits up at night researching stock tips online. That sort of activity is likely counter-productive and can add costs to their investments (let alone a tax on their mental wellbeing) without any associated benefit. With investing, constantly tinkering with does not correlate with success.
Many people struggle to apply this principle because the media tends to look at investing through a very different lens, focusing on today’s news (which is already priced in) or on speculating about tomorrow. This "guesswork" can surely be interesting, but is it relevant to your long-term financial plan? Probably not.
People caught up in this noise constantly switch fund managers based on past performance, or attempt speculative changes in their asset allocation, or respond in a knee-jerk way to news events that turn out to be just that; noise.
Again, the assumption underlying these approaches is that if you put more effort into the external factors and adjust your position constantly, you will get better results.
Unfortunately, many people end up earning poorer long-term returns from trading too much, chasing past performers, or attempting to time the market.
Ultimately, that’s just another reminder of the benefits available to the disciplined investor who stay focused on what they can control.
As the ancient Chinese proverb goes: “By letting it go, it all gets done. The world is won by those who let it go. But when you try and try, the world is beyond the winning.”
Amyr Rocha Lima, CFP® is a financial planner who specialises in working with successful professionals age 50+ to help them reduce taxes, invest smarter and retire on their terms.
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