Doing Nothing Can Be Better Than Doing Something

The constant barrage of financial news, market commentary, and investment advice can overwhelm individuals and lead to irrational behavior. People may be influenced by sensationalistic headlines, short-term predictions, or the latest market trends, which can result in impulsive buying or selling decisions. Relying too heavily on media noise can cause individuals to lose sight of their long-term investment goals and the importance of staying invested.

The latest event grabbing our attention is the debt ceiling. At the extreme, this has caused investors to question whether they should move to cash or not. Moving to cash involves selling, which means an action has been taken. Staying invested involves doing nothing and therefore no action taken.

People tend to regret the decisions where an action was made because it’s easier to point to. A different perspective may point out a decision not made should get equal attention, but it’s harder to measure. With the government debt ceiling nearing a resolution, the days leading up to it created lots of uncertainty. Either sell and move to cash. Or equally as important, is the decision to do nothing and stay invested. After the debt ceiling deal is reached, the market will move onto the next potential issue and the next. It doesn’t end.

We tend to weigh the negative outcomes more than the expected outcome. The decisions to do nothing are taken for granted because it doesn’t feel like a decision has been made. This at least somewhat makes sense because the psychology of money teaches us that the pain of losing money is far greater than the joy gained in winning the same amount. That’s what makes staying invested difficult.

Here’s some reasons why people tend to take some action when doing nothing is the better choice:

Sense of control

When individuals act, they perceive a greater sense of control over the outcome. This sense of control can lead to a stronger emotional connection and a deeper sense of ownership and responsibility for the chosen course of action. The decision feels more significant and resonates more strongly compared to situations where no active decision is made.

Psychological commitment

Active decision-making often requires an investment of time, effort, or resources. This investment can create a psychological commitment to the chosen course of action. The more effort or sacrifice an individual puts into a decision, the more likely they are to perceive it as important and meaningful. This heightened commitment enhances the resonance of the active decision compared to a passive alternative.

Perception of agency

Active decision-making reflects a perception of personal agency and autonomy. It gives individuals a sense of being active agents in shaping their lives and the world around them. This perception of agency can enhance one's self-esteem, satisfaction, and personal fulfillment, making the active decision more resonant and personally meaningful.

Confirmation bias

Individuals often seek information or experiences that confirm their pre-existing beliefs, attitudes, or decisions. Making an active decision can trigger confirmation bias, leading individuals to actively seek out evidence that supports their chosen course of action. This selective processing of information reinforces the belief that the decision was the right one, strengthening its resonance.

Narrative construction

Human beings are storytellers by nature, and we tend to construct narratives to make sense of our experiences and decisions. Active decisions provide a clear narrative structure with ourselves making choices and taking actions. This narrative framework allows individuals to construct a coherent and meaningful story around their decisions, making them more memorable and resonant.

Overall, the active decision to do something resonates more because it aligns with our need for control, reduces cognitive dissonance, creates psychological commitment, enhances our sense of agency, triggers confirmation bias, and facilitates the construction of personal narratives. These psychological factors contribute to the heightened significance and emotional impact of active decision-making compared to the alternative of inaction or passive decision-making.

DISCLOSURES:

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.

Generally, among asset classes, stocks are more volatile than bonds or short-term instruments. Government bonds and corporate bonds have more moderate short-term price fluctuations than stocks, but provide lower potential long-term returns. U.S. Treasury Bills maintain a stable value if held to maturity, but returns are generally only slightly above the inflation rate.

Asset Allocation may be used in an effort to manage risk and enhance returns. It does not, however, guarantee a profit or protect against loss.

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