Action Bias and Your XEQT Portfolio: Why Doing Less Beats Doing More Every Time

I got an email from a reader named Mike a few weeks ago. Mike is a 34-year-old electrician in the IBEW, lives outside Hamilton, and has been buying XEQT through Wealthsimple for about two years. His message stuck with me because it was so blunt:

“I keep feeling like I should be doing something with my portfolio. I log in, I look at the numbers, and this voice in my head says I should be making moves. Rebalancing. Buying the dip. Adding some tech. Selling the stuff that’s flat. I know the whole point of XEQT is that you don’t have to do anything. But doing nothing feels lazy. It feels like I’m not taking my money seriously.”

Mike is not lazy. He is the opposite of lazy. The fact that he cares enough to email a stranger on the internet about his investing strategy proves he takes his money seriously. But the thing eating at him – that persistent, nagging feeling that he should be doing something – is one of the most well-documented and financially destructive psychological forces in all of investing.

It is called action bias. And it is probably costing you money right now.

Here is the part that makes action bias so fascinating: the best metaphor for it does not come from finance. It comes from soccer.

In 2007, a research team led by Michael Bar-Eli studied 286 penalty kicks in professional soccer. They wanted to know the optimal strategy for goalkeepers. The data was clear: goalkeepers who stayed in the centre of the goal had a 33.3% chance of saving the kick. Goalkeepers who dove left had a 14.2% chance. Goalkeepers who dove right had a 12.6% chance. Staying put was the best strategy by a wide margin.

And yet, goalkeepers dove left or right on 93.7% of penalty kicks. Almost nobody stayed in the centre.

Why? Because standing still feels wrong. If you dive and miss, at least you tried. If you stand still and the ball goes past you, you look like you gave up. The goalkeeper knows, on some level, that staying put gives them the best odds. But the pressure to do something – from the crowd, the coaches, their own psychology – overwhelms the data.

Investing works exactly the same way. The data says staying put with XEQT produces better outcomes than constantly tinkering. But your brain – like that goalkeeper – cannot stand the idea of just standing there.

1. What Is Action Bias?

Action bias is the human tendency to favour action over inaction, even when doing nothing is objectively the better choice. It is not about laziness versus hard work. It is about the deep psychological discomfort we feel when we are facing a problem and choosing not to act.

The term was formally introduced in that 2007 Bar-Eli study, but the underlying concept has roots in decades of behavioural psychology research. The core finding is this: in situations of uncertainty, people overwhelmingly prefer to do something – anything – rather than nothing. Even when “something” has worse expected outcomes than “nothing.”

This bias is hardwired. Our brains evolved to equate action with survival and inaction with vulnerability. If a predator appeared, standing still was fatal. If food was scarce, passivity meant starvation. The person who acted – even imperfectly – survived.

The problem is that investing is one of the rare domains where the opposite is true. In investing, the urge to act is almost always the enemy. The market rewards patience, consistency, and the ability to sit on your hands while your brain screams at you to make a move.

And here is what makes action bias so insidious: it disguises itself as diligence. When Mike told me he felt “lazy” for not tinkering with his portfolio, he was experiencing a textbook case of action bias masquerading as responsibility. Our culture celebrates hustle. We admire people who are always optimizing. But in investing, trying hard and doing well are not the same thing. In fact, they are often inversely correlated.

2. The Five Forms Action Bias Takes in Your XEQT Portfolio

Action bias is sneaky. It rarely shows up as a single dramatic decision. More often, it manifests as a series of small, seemingly reasonable actions that collectively erode your returns over time. Here are the five most common forms I have seen.

a) Checking Your Portfolio Daily (or Hourly)

This is the gateway behaviour. You are not doing anything per se, but you are setting the stage for action. Every time you open the Wealthsimple app and see a red number, your action bias activates. It whispers: “You should do something about this.” If you never opened the app, you would never feel the urge. I wrote an entire post about how to stop checking your portfolio because this one habit is that damaging.

b) “Rebalancing” When It Is Not Necessary

XEQT already rebalances automatically. BlackRock handles it for you. But action bias makes some investors feel like they need to layer additional rebalancing on top – selling XEQT when it goes up and buying bonds, or adding more when it dips below some arbitrary threshold. This is not rebalancing. This is tinkering dressed up in financial jargon.

c) Selling During Dips to “Protect Profits”

The market drops 8%. Your XEQT position is down $3,000 from its peak. Action bias screams: “Get out before it gets worse!” So you sell, planning to buy back in at the bottom. Except you never know where the bottom is. You miss the recovery. You buy back in higher than where you sold. The behaviour gap widens, and your real returns fall further behind the market.

d) Switching ETFs Because Something Looks Better

You read an article about a tech-focused ETF that returned 30% last year. Suddenly XEQT’s 9% feels underwhelming. Action bias pairs with recency bias and convinces you to sell XEQT and chase the hot fund. This is strategy hopping, and it is one of the most reliable ways to destroy long-term wealth. By the time you switch, the outperformance has usually already happened.

e) Adding “Satellite Positions” to Feel Active

“I’ll keep 80% in XEQT, but I’ll put 20% into individual stocks so I have something to manage.” This sounds like a compromise between passive and active investing. In practice, it is action bias negotiating a deal. That 20% satellite allocation gives your brain something to tinker with, but it also introduces concentrated risk, extra trading costs, and emotional decision-making into a portfolio that was working perfectly without it.

3. The Data on Doing Too Much: What Research Actually Shows

Action bias is not just a theory. There is decades of hard data showing that the more active retail investors are, the worse their returns.

The Barber and Odean Studies

Professors Brad Barber and Terrance Odean conducted some of the most influential research in behavioural finance. Their analysis of 66,465 brokerage accounts from 1991 to 1996 found a devastatingly clear pattern:

• The most active traders (highest quintile by turnover) earned an average annual net return of 11.4%.
• The least active traders (lowest quintile) earned an average annual net return of 18.5%.
• The market return during the same period was 17.9%.

The most active investors underperformed the least active by more than 7 percentage points per year. Over a decade, that gap compounds into a massive difference in wealth.

The DALBAR Study

DALBAR’s annual Quantitative Analysis of Investor Behavior has been running for over 30 years, and the conclusion is always the same: the average equity fund investor significantly underperforms the market. Over the 30-year period ending in 2023, the average equity fund investor earned roughly 6.8% per year, while the S&P 500 returned roughly 10.1% per year.

That 3.3 percentage point gap is almost entirely driven by investor behaviour – buying high, selling low, switching funds at the wrong time, and taking action when inaction would have been better.

What 3.3% Actually Costs You

On a $500/month investment over 30 years:

That is not a rounding error. That is more than half a million dollars evaporated by the urge to do something. Every trade, every switch, every “strategic rebalancing” chips away at the returns that would have been yours if you had simply sat still.

4. The Active XEQT Investor vs. The Passive XEQT Investor

Let me make this concrete with a comparison between two hypothetical investors. Both start with $30,000 in XEQT and contribute $500 per month for 10 years. Both use Wealthsimple. The only difference is how they behave.

The “active” investor worked harder, spent more time, made more decisions, and ended up with potentially $30,000 to $50,000 less. Not because XEQT is a bad investment – both investors owned the same fund. The difference is entirely behavioural. One investor let action bias drive their decisions. The other one did not.

Key insight: The gap between the active and passive XEQT investor is not about the investment. It is about the investor. XEQT delivers the same returns to everyone who holds it. What varies is how much of those returns you give back through unnecessary action.

5. Why XEQT Is Specifically Designed for Doing Nothing

This is the part that I think a lot of investors miss. XEQT is not just a good investment that happens to work well with a passive approach. It was engineered to be a complete, self-managing portfolio that requires zero intervention from you. Every feature of XEQT is designed to make action unnecessary.

Built-in rebalancing. XEQT holds four underlying ETFs covering Canadian, US, international developed, and emerging market equities. BlackRock continuously rebalances these holdings to maintain the target allocation. You do not need to rebalance. You do not need to check the weights. It is done for you.

Global diversification across 9,000+ companies. When you own XEQT, you own a slice of virtually every publicly traded company on earth. You do not need to worry about whether you have enough exposure to tech, or healthcare, or European equities, or emerging markets. It is all in there. There is no gap to fill.

No decisions required. With XEQT, you do not need to decide what to buy, when to buy, how much of each region to hold, when to rebalance, or when to sell. Every single decision that action bias wants you to make has already been made for you by one of the largest asset managers on the planet.

A single holding that acts like a complete portfolio. Many investors feel the urge to add more holdings because they think a single ETF “cannot be enough.” But XEQT is not one stock. It is a portfolio of portfolios. Owning XEQT and nothing else is not simplistic – it is sophisticated. The simplicity on your end is the result of enormous complexity on BlackRock’s end.

The point is this: XEQT already does everything that action bias tells you that you need to do. Every itch to rebalance, diversify, optimize, or protect – XEQT has already scratched it. Your job is not to manage your portfolio. Your job is to leave it alone.

6. The Newspaper Test for Your Portfolio Activity

Here is a mental model that has helped me enormously. I call it the “newspaper test,” and it works like this:

Before you make any move in your portfolio, ask yourself: “Would this action make the financial news?”

If the answer is no, it is probably unnecessary tinkering driven by action bias.

Think about what actually makes financial news. Major market crashes. Central bank decisions. Geopolitical crises. Global recessions. These are events that move markets significantly and affect millions of investors. These are the kinds of events that might – might – warrant a review of your long-term strategy (though even then, the right move is almost always to do nothing).

Now think about the “actions” that action bias pushes you toward:

• Moving 10% of your XEQT into a sector ETF? Not newsworthy.
• Selling after a 7% dip? Not newsworthy.
• Adding a Canadian dividend ETF “for income”? Not newsworthy.
• Rebalancing your single-ETF portfolio that already rebalances itself? Definitely not newsworthy.

If your investing activity would not merit a headline – if no journalist would write about it, no analyst would comment on it, no other investor would notice or care – then you are almost certainly making changes that serve your psychology rather than your portfolio. You are acting to relieve the discomfort of inaction, not to improve your financial outcome.

The newspaper test is not foolproof. But it is a fast, effective filter for separating genuine strategic decisions from action bias in disguise.

7. Real-World Scenarios Where Action Bias Destroyed Wealth

Let me walk through three real scenarios where I have seen action bias cost Canadian investors real money. These are composites drawn from conversations with readers, but the patterns are universal.

Scenario 1: Selling During the COVID Crash (March 2020)

The market dropped roughly 34% in five weeks. For an investor with $50,000 in XEQT, that meant watching their portfolio fall to about $33,000. Action bias was deafening. “Do something! Get out! You’re losing thousands every day!”

Many investors sold. They “protected” their capital by moving to cash or GICs. By the time they felt safe enough to re-enter – typically 3 to 6 months later – the market had already recovered most of the losses. An investor who sold at the bottom and waited until September to buy back in missed a roughly 40% recovery. On that $50,000 position, the cost of acting was approximately $15,000 to $20,000. The investors who did nothing? Their portfolios recovered within months and went on to new highs.

Scenario 2: Switching to Tech ETFs at the Peak (Late 2021)

After watching tech stocks outperform everything for two years, some XEQT investors convinced themselves they were “leaving money on the table.” They sold XEQT and bought concentrated tech ETFs or individual tech stocks. The action felt smart. XEQT returned maybe 10% in 2021, while some tech-focused funds returned 25% or more.

Then 2022 happened. The Nasdaq dropped roughly 33%. Many of those same tech ETFs fell 30-50%. Meanwhile, XEQT, with its global diversification, held up significantly better. Investors who chased the tech rally not only suffered larger drawdowns but also often sold their tech positions near the bottom – locking in losses – and rotated back to XEQT, having missed both the tech upside and the XEQT stability. Double destruction, courtesy of action bias.

Scenario 3: Rotating Into GICs During Rate Hikes (2022-2023)

When the Bank of Canada started aggressively hiking interest rates, GIC yields shot up to 5% or more. Action bias pounced. “Why would I hold XEQT with all its volatility when I can get a guaranteed 5% in a GIC?” Some investors sold their XEQT positions and locked into 1-year GICs.

They earned their 5%. But XEQT returned roughly 17% in 2023 and continued climbing into 2024 and 2025. The investor who switched captured 5% while the market delivered three times that – and then they faced the same action bias dilemma when deciding when to “get back in.” The guaranteed return felt safe. The opportunity cost was enormous.

8. Building an Inaction System

If you have read this far, you probably agree that action bias is a problem. But agreement is not enough. You need systems that make inaction the default, because when the market drops 15% and your pulse is racing, willpower alone will not hold you in place. Here is how to build an environment that makes doing nothing the easiest choice.

Remove Trading Apps From Your Home Screen

This sounds trivial. It is not. If opening Wealthsimple requires a swipe and a tap, you will do it dozens of times a day. If it requires navigating to a folder, scrolling to find it, and then logging in, you will do it much less. Friction is your best friend against action bias. Make the action inconvenient and you will default to inaction.

Check Your Portfolio Once Per Quarter

Set a recurring calendar reminder: January 1, April 1, July 1, October 1. On those days, open Wealthsimple, confirm your automatic purchases are running, and close the app. On every other day, do not look. If you are currently checking daily, move to weekly first, then monthly, then quarterly. Each reduction in frequency reduces your exposure to the small, noisy fluctuations that trigger action bias.

Write an Investment Policy Statement

This is the single most powerful tool against action bias, and most individual investors have never done it. An investment policy statement is a one-page document you write when you are calm and rational. It lays out:

1. What you own: XEQT, 100% equity allocation
2. Why you own it: Global diversification, automatic rebalancing, low cost
3. Your time horizon: 15, 20, 30+ years
4. Your contribution plan: $X per month via automatic purchases
5. What you will do during a crash: Nothing. Continue automatic purchases.
6. When you will sell: Only when you need the money in retirement

When action bias hits, read this document. It was written by the rational, calm version of you, speaking to the anxious, twitchy version of you. It is remarkably effective because it shifts the burden of proof: instead of asking “Should I do something?” you ask “Does this situation warrant deviating from my written plan?” The answer is almost always no.

Turn Off Financial News and Price Alerts

Financial news is designed to make you feel like you need to act. Every headline is urgent. Every dip is a “crash.” Every rally is a “surge.” The news does not make money by telling you to sit tight – it makes money by keeping you engaged, anxious, and clicking. Turn off push notifications from your brokerage. Unsubscribe from daily market recaps. Your portfolio does not need you to be informed about every 0.3% move.

Set Automatic Investments and Forget About Them

Wealthsimple lets you set up recurring automatic purchases. Use this feature. Set your XEQT purchase to run every payday. Once it is set up, the money moves without you making a decision. There is no moment for action bias to intervene because there is no moment of decision. The system acts for you, and the system does not feel the urge to tinker.

9. The Paradox: Doing Nothing Is the Hardest Part of XEQT Investing

Here is the irony that sits at the heart of this entire post. People think passive investing is easy because the strategy is simple. Buy XEQT. Hold XEQT. Contribute regularly. Never sell. Done.

The strategy is simple. Executing it is brutally hard.

It is hard because every part of your psychology – action bias, loss aversion, recency bias, overconfidence, social pressure from friends picking stocks – pushes you toward action. Doing nothing requires you to override millions of years of evolutionary wiring every single time the market does something scary or exciting.

Consider what “doing nothing” actually requires:

• Watching your portfolio drop 20% and not selling. Most people fail this test.
• Hearing about your colleague’s 40% return on a meme stock and not chasing it. This requires genuine confidence.
• Reading headlines about market crashes and not opening your brokerage app. This takes practiced discipline.
• Contributing money month after month with no immediate reward. This demands patience most people do not have.
• Telling people your investment strategy is “I buy one ETF” and enduring the pause. This requires ego strength.

I have written about the paradox of simple investing before, and about the value of boring investing. But action bias is the specific mechanism that makes simplicity so hard to sustain. It is the voice in your head that says doing nothing is the same as being careless. It is the itch you cannot scratch. And the only way to beat it is to recognize it for what it is: a cognitive bias, not a signal. A glitch in your psychology, not a message from the market.

10. The Best Investors Do Nothing – and That Is Exactly What Makes It Work

There is a widely cited story about Fidelity reviewing which of their customer accounts had the best returns. The top performers, so the story goes, fell into two groups: people who had died and people who had forgotten they had an account. Whether this particular anecdote is precisely true, the underlying principle is backed by mountains of evidence. The less you do, the better you do.

This is not intuitive. In almost every other domain of life, more effort produces better results. Studying harder gets you better grades. Training harder makes you a better athlete. Working harder advances your career. But investing is the rare exception – a domain where effort and outcome are negatively correlated beyond a certain baseline.

That baseline, by the way, is remarkably low for XEQT investors:

1. Open a Wealthsimple account. (15 minutes, once)
2. Set up automatic XEQT purchases. (5 minutes, once)
3. Write an investment policy statement. (30 minutes, once)
4. Quarterly check-in. (5 minutes, four times a year)

That is roughly one hour of setup and 20 minutes per year of maintenance. Everything beyond that is not investing. It is action bias looking for something to do.

Mike – the electrician from Hamilton who emailed me – wrote back after I shared some of this research with him. He said something that I think captures the entire point perfectly: “So what you’re saying is, my job is to do nothing, and the hard part is actually doing it.”

Yes, Mike. That is exactly what I am saying. And the fact that it is hard is exactly what makes it work. If doing nothing were easy, everyone would do it, and the behaviour gap would not exist. The difficulty is the filter. The investors who can sit still, who can resist the urge to tinker, who can watch their portfolio drop without flinching – they are the ones who capture the full return that the market offers.

You do not need to be smarter than other investors. You do not need better analysis, better timing, or better stock picks. You need to be better at doing nothing. That is the only edge that matters.

Buy XEQT. Automate it. Close the app. And go live your life. The money will take care of itself.

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