In times like these, we feel a strong urge to do something— anything—to gain control over the situation.
Unfortunately, when it comes to investment adjustments—especially those in reaction to markets—most decisions are bad decisions.
Even when higher turnover does lead to higher returns, it also results in higher taxes and transaction costs—so you would expect higher turnover investors to have lower net returns, on average.
That’s because these strategies often require very small, very frequent changes that are often counterintuitive, uncomfortable, and definitely don’t help scratch the “itch” to take action.
As a general rule, it’s okay to make a change because your spending or retirement goals have changed, or because the long-term outlook for markets has fundamentally changed—but don’t do it just to feel more comfortable.
There is a lot of wisdom in the Serenity Prayer, which asks for “the serenity to accept the things we cannot change, the courage to change the things we can, and the wisdom to know the difference.” Investing requires us to accept short-term volatility in exchange for long-term growth potential; even so, we do have tools to improve the risk-return dynamic—for example, building a well-balanced, diversified portfolio.
When you decide to make a big decision to change your long-term strategy or plan, give yourself some time to reconsider—maybe not 40 days, but at least a week should be enough.
Therefore, if you need to spend from your portfolio in the next 3–5 years, it’s a good idea to set aside a Liquidity strategy to help you meet those needs regardless of market volatility.
This approach is not a promise or guarantee that wealth, or any financial results, can or will be achieved.
Barber, Terrance Odean, Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors, The Journal of Finance , Vol.
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