Most Canadians who invest in low-cost, diversified ETFs are already doing something right. They have chosen a strategy backed by decades of evidence. They have kept their fees low. They have set themselves up for long-term compounding. And then, when markets fall, many of them quietly undo all of that in an afternoon.
Not because the strategy failed. Because they did not trust it.
The uncomfortable truth about investing is that the market is rarely your worst enemy. In most cases, that title belongs to the person watching the portfolio balance.
There is a concept in behavioural finance called the “behaviour gap”—the difference between what a fund actually returns and what the average investor in that fund actually earns. The gap exists because investors buy after markets rise and sell after markets fall. They do the opposite of what the strategy requires.
Morgan Housel captures this precisely in his book The Psychology of Money: “The ability to do what you want, when you want, for as long as you want, has an infinite return on investment.” The point is not just about lifestyle freedom—it is about the compounding cost of interrupting a strategy. Every time you sell in a downturn, you are not protecting your portfolio. You are permanently reducing it.
The math is unforgiving. Missing even the ten best trading days over a twenty-year period can cut total returns dramatically. And those best days tend to cluster immediately after the worst ones. You cannot opt out of the bad days without also risking the best.
Here is what makes behavioural investing so difficult: selling during a downturn does not feel like a mistake. It feels rational. Protective. Responsible.
Markets are falling. The news is alarming. Your balance is lower than it was last month. Every instinct you have been trained to trust—avoid loss, take action, do something—is firing at full volume.
Andrew Hallam addresses this directly in his book Balance, reminding investors that our emotional wiring was not designed for modern markets. We evolved to respond to threats immediately and decisively. A portfolio dropping 20 percent triggers the same psychological alarm system as a physical threat. The problem is that the correct response to a market decline is almost always the opposite of what that alarm system tells you to do.
Inaction, in investing, is often the most disciplined action available.
It is worth being clear that investor behaviour can significantly improve performance just as easily as it can damage it. The discipline to stay invested through volatility, continue contributing during downturns and resist the urge to chase last year’s top-performing sector—these behaviours compound just as powerfully as interest does.
The investor who kept contributing during the 2020 pandemic crash bought units at deeply discounted prices. When markets recovered, those additional units recovered with them. The strategy did not just survive the downturn—it benefited from it.
The reverse is equally true. The investor who moved to cash in March 2020 locked in losses, sat out one of the fastest recoveries in market history and likely re-entered at higher prices after confidence returned. Same market. Completely different outcome.
The difference had nothing to do with the ETFs. It had everything to do with behaviour.
There is a reason many investors struggle to stick with a passive ETF strategy long-term, and it has nothing to do with the strategy’s effectiveness. It is that the strategy is boring.
You buy a globally diversified, low-cost fund. You contribute regularly. You rebalance occasionally. You do not trade on news. You do not pivot to sectors or themes. You do not have a story to tell at dinner about a stock you picked.
For years, sometimes decades, it feels like nothing is happening. Compounding is invisible until it is not. Then one day you look at your account and the math has done something remarkable—quietly, without drama, exactly as intended.
Housel puts it plainly: “Good investing is not necessarily about making good decisions. It is about consistently not screwing up.” That standard—not screwing up—sounds easy. In a volatile market with alarming headlines and a falling balance, it is one of the hardest things an investor will ever do.
Knowing that behaviour matters is only useful if you have a structure that makes the right behaviour easier to execute. A few principles that work:
Automate contributions so that investing happens regardless of how markets feel. When contributions are automatic, there is no decision to make during a downturn—the strategy simply continues.
Define your investment policy in advance. Know your asset allocation, your rebalancing triggers and your time horizon before markets fall. Decisions made in advance of volatility are almost always better than decisions made during it.
Limit how often you check your portfolio. Volatility feels more extreme when you watch it constantly. Long-term investors with long check-in intervals tend to make fewer emotional decisions.
Rebalance on schedule, not on emotion. If your allocation drifts, rebalance back to your target. That is a mechanical process, not a market call.
For a deeper look at how staying invested through turbulent markets plays out in practice, our post on What To Do When Markets Are Down walks through real scenarios with real numbers. And if you want to understand why time in the market so consistently outperforms attempts to time it, Why Time In The Market Beats Trying To Time The Market is worth reading alongside this one.
A passive, low-cost ETF strategy will not feel rewarding every year. Some years it will feel deeply uncomfortable. You will watch your balance fall and wonder whether something smarter exists. There will always be someone talking about a hotter trade, a better sector or a more sophisticated approach.
Most of the time, the sophisticated approach is also the one that underperforms after fees, taxes and the behavioural mistakes that complexity invites.
Hallam is direct about this in Balance: building wealth is less about finding the best investment and more about building the right relationship with uncertainty. The investors who do best over long time horizons are rarely the most analytical. They are the most consistent.
Consistency is unglamorous. It is also the mechanism by which ordinary people build extraordinary long-term wealth.
Markets will fall. They always have. They will also recover. They always have. What determines your long-term outcome is not which downturn you lived through—it is what you did during it.
The investors who stay diversified, keep costs low and resist the impulse to act on fear are not the ones taking the most risk. They are the ones managing it most effectively.
If you are ready to build a disciplined long-term framework—one designed to hold up when markets make it difficult—the Wealth Builder Blueprint in the Northern Nest Egg store is a practical place to start.
Compound interest does not reward the most active investor. It rewards the most patient one.
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