By Jon Burckett-St. Laurent, Senior Portfolio Manager
Investing is filled with uncertainty, and that uncertainty often leads to hesitation. Many investors struggle with the decision to act, whether it’s entering the market, rebalancing their portfolios or trimming concentrated positions. But inaction itself is a decision—one that can have real consequences.
Some investors might assume that if their current strategy has worked so far, it will continue to work indefinitely. But markets evolve and failing to adapt means leaving your financial future to luck. Instead of postponing action due to uncertainty or fear, investors can assess the facts and make decisions based on probabilities, not emotions. In this commentary, we’ll examine common ways hesitation factors into investing.
First, a major reason why investors hesitate is daily distractions. Life gets busy, and day-to-day concerns can take priority over long-term financial goals. But when you look back over a 10- or 20-year period, a handful of key decisions move the needle. This idea goes hand in hand with analysis paralysis. The vast amount of news and information that floods our inboxes, phones and TV screens daily can overwhelm our ability to process and make decisions. In truth, fundamentals change much slower than market prices or the 24-hour news cycle, and most of the daily news flow isn’t relevant to a long-term financial plan. Investors often try to wait for the perfect moment when no such moment may exist. Markets don’t provide perfect solutions or magic bullets, and waiting can result in lost opportunities. Making an informed decision quickly is often better than doing nothing.
Market volatility is another key driver of inaction. When prices swing rapidly it can be daunting. Price declines can spark a fear of loss and drive us to delay investing or, worse yet, panic-sell our valuable long-term assets at short-term lows. Stocks are often up or down 10% in a quarter,1 leading some investors to delay deploying capital, preferring to sit in cash and invest after a big decline. But history suggests that the best time to invest was yesterday, and the second-best time is now. Sitting in cash might feel safe, but inflation quietly erodes purchasing power over time.2 Conversely, periods of rapid price appreciation can trigger an equally misguided fear of “missing out.” When it seems like everyone around us is getting rich overnight, it can spark greed and a herd-like rush into assets that may not suit our long-term goals or may be overpriced beyond its true value. Data shows that most retail investors underperform the very funds in which they are invested due to emotional decisions to sell at low prices and add risk following periods price of appreciation, precisely when forward expected returns are lower.3 The more actively retail investors trade, the worse their results tend to be.
We also see some hesitation when it comes to taxes. Understandably, some people want to avoid realizing gains because they don’t want to trigger a capital gains tax.4 Tax efficiency and consequences are important, though not necessarily the primary driver of investment decisions. Taxes are a known, tangible cost that you have to pay, which can spook investors into inaction. Risks, on the other hand, often feel more abstract—until they aren’t. Allowing the fear of taxes to dictate your strategy can result in missed opportunities or losses when a concentrated position collapses.
“Market timing,” or jumping in and out of risk assets periodically in anticipation of future price changes, is incredibly challenging. While some believe they can jump in and out at the right moments, even professionals struggle to do this consistently. Even if one’s timing is perfect, actively trading can create additional taxable gains that could more than offset the benefits.5 Risk management is a better approach than trying to time the market. Avoiding risk entirely isn’t realistic, but disciplined strategies that manage risk and volatility may add value over long periods.
On the other hand, volatility can be an opportunity if approached correctly. Some investors reflexively "buy the dip," assuming all declines are temporary.6 But not every dip is a buying opportunity. Markets often swing irrationally—sometimes undervaluing assets, sometimes overvaluing them. Keeping your eyes on your long-term financial goals is truly what helps investors build value. Take the amount of risk needed to meet your financial goals, but not much more. Overstepping into more risk than you are comfortable with, or more than current fundamentals and risk/reward can justify, will likely create worse results in time. Inevitable bouts of market volatility and the fear (or greed) they provoke should not influence your asset allocation plan. Periodically rebalancing back toward strategic allocations and sometimes moving them incrementally as life circumstances change is vital to long-term success.
As always, we are happy to discuss your investment strategy. Are you holding onto risky concentrated positions? Have you been waiting for the perfect time to invest? Are you adjusting to market movements thoughtfully? Reach out to your Exencial advisor to discuss how to position yourself effectively. The worst decision is making no decision at all.
Sources
- NerdWallet (1/27/25) – What is a stock market correction?
- International Monetary Fund (data as of 2/5/25) – Inflation: Prices on the rise
- DALBAR (4/11/24) – DALBAR releases 30th annual QAIB report
- IRS (data as of 2/5/25) – Topic no. 409, Capital gains and losses
- Intuit TurboTax (11/14/24) – Day trading taxes: What new investors should consider
- MarketWatch (5/5/22) – Opinion: ‘Buy the dip’ isn’t a good investing strategy, just a good meme
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