Investors – Stop Living in the Past
One of the most common investing mistakes has nothing to do with picking the wrong fund or missing the bottom of the market. It comes down to how we talk about investing decisions in the first place.
We tend to describe past market moves as if they’re still happening. The market is falling, what should I do? My investments are earning more than the interest on my debt, why would I pay it off?
But those statements are already out of date. The market fell. Your investments earned 20 percent. None of that tells you what happens next.
Our brains are wired to focus on what just happened. Recent losses feel urgent and permanent, while recent gains feel reassuring and repeatable. That isn’t a personal failing, it’s just how recency bias works. The problem is that investing only works in the future tense.
The market dropped. It isn’t dropping. Your portfolio had a great year. It isn’t having a great year. The only question that matters is whether your current portfolio still makes sense going forward, given what you know today and what you’re trying to accomplish.
This mistake shows up most clearly when people talk about selling an investment that has fallen sharply. The usual framing sounds like this.
“I don’t want to sell now because I’d be locking in a loss. I’ll wait until it gets back to where I bought it.”
But that framing is backwards. The money you invested is already gone. What you actually have today is the current market value of that investment.
The right way to think about it is to imagine you’re holding that amount in cash right now. If the cash were sitting in your account, would you use it to buy the same investment today, at today’s price, with today’s information? If the answer is no, then holding it is simply the same decision repeated by inertia.
Selling a losing investment isn’t admitting defeat. It’s updating your decision based on new information. Not selling is still a decision, just one made by default rather than intention.
The same logic applies after strong returns. A stock or fund that did very well last year doesn’t earn a permanent spot in your portfolio. Past performance doesn’t create a future obligation. Every holding needs to justify its place based on expected future returns, not recent results.
This is also where broad index investing changes the conversation. When you buy an individual stock, you’re making a specific bet on its future direction. You need that company to execute, grow, and outperform what the market already expects. Timing matters. Being wrong also matters.
And the odds are worse than most people realize. Research by Hendrik Bessembinder shows that most individual stocks are long-term losers. Many go bust. Most fail to outperform short-term Treasury bills over their lifetime. The overall gains of the stock market come from a relatively small number of extreme winners, which means picking individual stocks requires finding the exceptions, not just avoiding obvious mistakes.
When you buy a globally diversified ETF like VEQT, you aren’t making a bet on a single company or a narrow outcome. You’re buying ownership in thousands of companies across the global economy. The bet isn’t that prices will keep going up in the short term. The bet is that, over time, global businesses will continue to generate profits and grow.
That’s why a global index fund being “high” isn’t the same thing as an individual stock being overvalued. Markets spend a lot of time near all-time highs because long-term growth is positive more often than not. The expected return comes from owning future earnings across the entire market, not from predicting what happens next.
Investing gets simpler when you stop asking what just happened and start asking what you’d do today with the money you have. The past is interesting, but it’s no longer actionable. The only decisions that matter are the ones you make looking forward.
What would you say about a scenario where you’re sitting on capital gains in a non-reg account because you can’t easily buy what you’d rather buy because you don’t have room in a tax free or tax deferred account, or you’ll have a big tax hit in the non-reg account? How do you intentionally extricate yourself out of this scenario?
Exactly my scenario! I dont want to trigger a capital gain yet I want to get out of the investment I am in.
Me too!
At one point, you pull the band aid. I went through that as I needed to diversify, no way out. I also use my higher capital gain position for stock donation so save on capital gin tax on that end.
Never let taxes make your desicions. If there is a better opportunity go for it. I have claimed large Capital Gains for the last 4 years so much so that it makes it difficult to withdraw from the Registered accounts. Nothing worse than having a big winner and not cashing out then watch it slowly drop back to your purchase price. Anyway you have to pay the tax at some.poimt or your heirs will.
Very true and a difficult concept to embrace. I’m in the same boat and will see how 2025’s return will fair out as I’ve tapped my RRSP with my first significant withdrawal along with some covered call income. Another barrier people need to get over is OAS clawback. If you have clawback then you are probably doing ok unless are really messing things up. Don’t try to limit income and taxes to save that precious 700 bucks a month!
Hey Greg
Have you watched / listened to Ben Felix’s recent videos and podcasts on covered call funds?
Greg W
Do consider taxes. Future returns are uncertain. You may or may not do better by changing investments. If you realize a large capital gain then your taxes will be paid with 100% probability.
…but you could start shifting investment mix in smaller chunks.
Do consider taxes. Future returns are uncertain. You may or may not do better by changing investments. If you realize a large capital gain then your taxes will be paid with 100% probability.
…but you could start shifting investment mix in smaller chunks.
(I don’t know what happened with my reply it just posted what you said instead of my reply.)
Re: smaller chunks… That did occur to me however doing it in small chunks over the course of several years to minimize taxes runs the risk that by the time you finish the transition the world shifts again. I guess there’s no other way though.
The change shouldn’t be an attempt to time. Then constantly shifting world won’t matter
Or you could also watch your Gains disappear and turn into a loss. Ever heard of BCE, Telus on and on. All companies go through good and bad times no need to stay aboard when things are not going to plan.
What about adjusting your holdings in the other accounts close to your target and hanging on to the capital gain for lower income years like early retirement?
What about adjusting your holdings in the other accounts close to your target and hanging on to the capital gain for lower income years like early retirement?
This type of perspective is so needed. Thank you Robb. I’m that person in your italicized quote right now with regard to one “losing” ETF I’m sitting on. I dwell on it too much while other investments that I have that are doing well I tend to shrug as if that’s expected. I try to remind myself that every single valuation is not a reflection of its past performance, it’s a statement or rather a prognostication of where it’s going.
Like my father told me- the market is driven by “GREED” and “FEAR”.
Both are human weakness’s”.
My father traded the market till one month before he passed away. He bought 100 shares of Apple at the age of 94.
I guess it takes a long time in life to get it right.
Thanks Rob, great article as always.
I made the mistake of investing in a hot single stock a while ago. Not a lot of money, but since my purchase, it’s lost over 90% of its value. It’s worth so little now that it’s almost not worth selling. I actually think it’s more valuable to keep it in my portfolio as a reminder to not do that again. (Maybe the bigger mistake was that it’s in my TFSA, so I can’t harvest the loss)
Generally agree, except for momentum. Trends persevere more often than they don’t.
A psychologist once told me – “What would you tell a friend or your child going through your exact situation? Would you talk to them the way you’re talking to yourself right now?”
I also apply that to investments. If it wasn’t my money, it was my sister/brother/best friend/child’s money – what advice would I give them? That’s the advice I follow.
Didn’t Fidelity do a study where the most successful investors are those who forget they own accounts?
Big fan of the set and forget method – stick to the plan, move on with other parts of life… oh and reach out to Robb but only if you really need to.
Great way to do it
Recently I was cleaning out old financial statements. I used to have a stock broker who was pretty sharp and he provided good advise. I rode the wave of financial companies who provided mutual funds and did very well, although with a few spectacular failures (some at zero still in my portfolio). I bought IPOs based on his advise and would sometimes flip them within days. As I looked through those old statements, I realized how much money I spent on trading fees. My broker certainly did well. However, I also lost money in a number of areas, especially after listening to financial advisors, some who still write columns today.
Today with just a few ETFs that I hold (including VEQT and VXC), my stress level is low. The market is going up and down, but the long term trend is positive. I don’t care if a few companies that are always in the news are doing well or poorly. I certainly take financial advisors advise with a grain of salt and try to never read their columns. I read Robb’s articles and know that I’m headed in the right direction to fund the retirement lifestyle I’m living. Simple is definitely better in the long run. Thanks Robb.