What should I do with my portfolio in 2025 (or the Fine Art of Doing Nothing)?

I've been asked a few times quite recently some variation of the following question:

"Given the recent political turmoil, especially with Canada and the US, what should  I do with my portfolio?   Should I have more/less US dollars?   More (or less) US equities? What about Canadian stocks?"    

The  short answer is I have no idea nor does anyone else and so staying the course is usually your best option.  That is, one of your most important investing skills is the ability to do nothing. At first glance, this might not seem like a skill at all. Isn't investing about making timely decisions, identifying opportunities, and reacting to market movements?  For a select few maybe, but successful retail investors, especially when facing unsteady or volatile markets, practice the fine art  of doing nothing.

Why Do Nothing?

1. The Nature of Markets: Markets are inherently cyclical. They experience periods of growth followed by inevitable corrections and pullbacks. History has shown that short-term market fluctuations, while unsettling, are often followed by recoveries and long-term gains. Trying to time the market or make reactionary decisions in these periods of volatility has proven to lead to lower returns for most retail investors.

2. The Cost of Emotional Decisions: Investing based on fear or greed can be detrimental. Panic selling during market downturns can lock in losses, and buying into a rising market driven by "fear-of-missing-out" can lead to overpaying for assets. Emotion-driven decisions often disregard your long-term strategy, goals, and risk tolerance.   This can lead to regret, high transaction costs, and unnecessary (non-deferred) capital gains taxes. By doing nothing, investors can avoid these emotional and fiscal traps.

3. The Strength of a Long-Term View: Patient investors know that success isn't measured by weekly fluctuations. Rather, it's about the long-term. When markets experience turbulence, those with a long-term mindset are less likely to panic. They know that their investments will likely recover over time (as historical  returns  have proven time and again), and that short-term volatility is just noise.

4. The Importance of Rebalancing, Not Reacting: There is a big difference between rebalancing your portfolio according to your pre-established plan versus reacting to every market move. A disciplined investor focuses on regular portfolio rebalancing and ensuring their asset allocation is aligned with their long-term goals, rather than trying to chase every market trend. Rebalancing involves making strategic adjustments when necessary, not emotional responses to market noise. This is one of the key benefits of all-in-one asset allocation funds that have a set asset mix and rebalance the portfolio for you automatically.

How to Practice the Fine Art of Doing Nothing

1. Set Your Goals and Stay the Course: Before you even consider specific investment strategies, be sure to have a clear understanding of your investment goals. Are you investing for retirement, buying a home, or saving for a child’s education? With well-defined objectives, you’ll be less likely to stray from your strategy, even when the market is shaky.

2. Establish a Well-Thought-Out Strategy: A disciplined investor always has a strategy in place. This includes choosing investments based on your risk tolerance, time horizon, and objectives. Again, investment products such as low fee, asset allocation, diversified  index ETFs make it very easy to implement a sound and long-term strategy.

3. Avoid Over-monitoring: Constantly checking the stock market, reading the latest financial news, and worrying over economic predictions can fuel anxiety and the need to "do something".  Consider committing to checking your investments only quarterly or annually instead of reacting to every fluctuation.

4. Stay Focused on Fundamentals: Instead of looking at stock prices or market movements, return to the basics of your strategy and overall financial plan. Are my financial (and non financial) goals still the same? Have I maximized my tax advantaged accounts (such as TFSAs and RRSPs)?  Have I maximized my employer matching  benefits?  Is my life and disability insurance adequate? What can I do to get paid more? Do I really need that new car?  These simple fundamentals are typically more important and impactful than constantly changing your investments and are thus more worthy of your attention too.

The Benefits of Doing Nothing

1. Reduced Costs: There is an old adage in finance: "Investing is like a bar of soap, every time you touch it, it gets smaller".  Each time you buy or sell an asset, there are transaction costs involved. Additionally, frequent trading can lead to tax implications that could eat into your returns. By doing nothing, you save on these costs over time.

2. Compound Growth: The less you interfere with your investments, the more likely you are to take full advantage of compound growth. The power of compounding works best when you allow your investments to grow without interruption. By sitting tight, you give your money the time it needs to multiply.

3. Mental Health: Financial markets are noisy, and we are all bombarded by a constant stream of information and market predictions.  Studies show that for every correct market prediction, there is an equal and  opposite incorrect one.  By doing nothing, you can abandon the stress of noisy markets and build peace of mind. Knowing that your strategy is sound, and focusing on things that you actually have control over, you will sleep better at night.

Conclusion

In any market, the best action is usually to do nothing. By maintaining discipline, focusing on your long-term goals, and resisting emotional decisions, you can weather market volatility more effectively. By doing nothing with your investments, you can focus more time on the  things you can control. The art of doing nothing is not about being passive—it's about exercising patience, trusting your strategy, and letting the markets work for the long term.