Should you react every time the market swings, or is doing nothing sometimes the smartest financial move you can make?
In this episode of Pivot with Darryl Lyons, Darryl explores why resisting the urge to constantly adjust your investments may lead to better long-term outcomes. Using an unexpected lesson from World Cup penalty kicks, he explains the psychology behind action bias and why investors often feel compelled to make changes even when patience is the better strategy.
From understanding Roth IRAs versus traditional retirement accounts to learning how emotional decision-making can hurt investment performance, this episode offers practical insights for building confidence during uncertain markets. Darryl also shares why tax diversification, annual financial checkups, and filtering out financial noise are essential parts of a successful long-term investment strategy.
You’ll learn:
Why doing nothing can sometimes be the best investment decision
The hidden emotional cost of trying to time the stock market
How Roth IRAs compare to traditional IRAs and 401(k)s
Why tax diversification can create more flexibility in retirement
How market volatility affects investor behavior
Practical ways to stay disciplined during market uncertainty
Why long-term investing often outperforms emotional reactions
Whether you’re planning for retirement, navigating market volatility, or simply looking to become a more confident investor, this episode provides practical strategies to help you make thoughtful financial decisions instead of emotional ones.
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I just anchor to the idea that there’s a lot of volatility in the short term, but long term it generally works out. And so just make sure you have some good anchors and then, you know, wrestle with those anchors with your advisor. Those are helpful. So that way you can have a filter in which you get decisions and you don’t just simply kind of fall for anything, especially when Chicken Little comes screaming, which, you know, we’re closer to the next recession than the last one.
So you got to be be on your toes. Hey, this is Darryl Lyons, CEO and co-founder of Pax Financial Group, and you’re listening to Pivot with Darryl Lyons, where we talk about wealth, leadership and life. This information is general nature only. It’s not intended to provide specific investment, tax or legal advice. Visit Paxfinancialgroup.com for more information.
So I want to start out our day with the question that I got online. I call this section pondering with Pax, and the question is if someone is in a higher tax bracket, is a Roth IRA better than a 401k? So that we have to get our nomenclature right here. And.
I’m trying to think I want to do this in a concise way. The IRA and the four one is just to wrap around your investments. Your investments are inside of those two. The Roth IRA established a long time ago in 1994 by Senator named Roth out of Delaware. He wanted to make the money tax free, whereas the 401k, traditionally, when you pull it out at retirement, it’s taxable. So the problem that the dilemma that you might be running into is, should you put money into something that you get a deduction today. But the better comparison would be a Roth IRA versus a traditional IRA. A traditional IRA. You get a tax deduction now, which is really beneficial to people in a really extremely high tax bracket, the Roth IRA.
You don’t get the deduction now. But when you pull it out at retirement and if you play by the rules, it’s tax free. But the problem is, is if you’re in a high tax bracket now in retirement, you might be in a low tax bracket. So which one is better. And I’ll get to the 401k in just a second.
Generally speaking we’ve modeled this out many times. The Roth IRA. You know you are if you’re in a very high tax bracket, you’re not getting the tax deduction. That would really be advantageous to you today.
That’s just the reality. And you’re making a trade off. You’re not getting the really advantageous deduction today for down the road getting tax free income quite possibly at a lower bracket.
So the math is oftentimes skewed towards maybe getting deduction today in a traditional IRA. All that being said, I still like the idea of putting money into Roth IRA, even if you are in a high tax bracket. And here’s why I believe tax diversification matters. I think down the road, having various buckets of money is very helpful to pull from, and I’ve seen that over the years where you may if you’ve built up a bucket of Roth IRA, maybe it costs you a little bit more because you didn’t get the deduction when you were in a high tax bracket.
It just became a different financial tool in your tool belt for different environments, different administrations that may be in the market, that may change the rules. And you want to have a bucket of tax free money in a Roth. I think that’s going to be very helpful and give you peace of mind in retirement now. So my point is, is that mathematically speaking, I would tilt towards the deduction.
Now if you’re in a high tax bracket. But I would still do Roth IRA because it gives you that tax diversification down the road. Now your 401 K. This is where there was no problems or challenges has a different set of rules. But interestingly enough inside of the four one you can choose whether you want a Roth contribution or the traditional.
So you can make that choice within the 401k. So I hope that helps. There’s a lot to unpack in that question, and many of which would require you to sit down with an advisor to kind of model things out. I want to encourage you to do that, because I can only cover so much in the pondering with PACs segment here.
So let’s jump into the content today, which I’m really super excited about because it’s rooted in the World Cup. I been amazed about the World Cup. I’m a my daughter is a soccer girl. We were in Manchester earlier this year doing the soccer thing. Got a chance to hang out with a lot of British folks and really just learned to appreciate the game and the history.
Went to Everton, met some. I didn’t meet Liverpool players my daughter did, but got a chance to just really just appreciate the game like never before. And so my perspective is changing. Certainly the World Cup is is added to that. And so there was a there was a, an article I came across that it was research that looked at 286 penalty kicks in a light soccer.
And I’ll put a link to this study here. And it’s not a thorough study. 286 probably doesn’t really account for the different variations in the different styles and the, you know, different levels of skill, but I think you’ll get the point. And the less so 286 penalty kicks in light soccer and the best strategy for the goalkeeper was it to go left or was it to go right?
It was actually to stay still, to stay in the middle. Maybe not stay still, maybe jump a little bit. But that’s that’s irrelevant. It wasn’t.
It was just to stay in the middle. But 93% of the time they moved to the left or right. And it was and and so reading the study going, well, it’s pretty interesting that if the goalkeeper knew that the it was best to stay in the middle, why did they go to the left or right?
What compels them to feel like they have to take some type of action? And so then it bridges the gap into the financial and the money world that I live in. And so I asked myself, is there a conversation to be had about inaction versus action when it comes to investments? And that’s what I want to talk about today.
And I’ll do this. I’ll break this down in four different sections. The first one is again, everything’s done brief in brevity here. Try to covering a lot of ground in a short amount of time, but the first one is doing nothing can still be a real decision. I don’t I don’t want to discount doing nothing. And the challenge with doing nothing is sometimes you feel like you’re foolish, like, I’ve got to do something and I don’t know, maybe I probably should have studied this before the podcast.
There’s probably something to be said about men having this problem more than more than women. That that you can go ahead and find some research and send it to me. But I’m sure there’s something to be said that anecdotally, I believe that to be true. But the social pressures and the psychological pressures of doing something is heavy and it weighs on goalkeepers.
Certainly, I know that there was one where there’s some research, subsequent research where I was kind of going down a rabbit trail where, soccer teams that lost felt compelled to make lineup changes the next game that were really just rooted in the coach’s feeling of having to do something they may not have been it may not have been a material difference.
It was just the desire of in the emotional weight of having to do something. So sometimes it’s the plan, frankly, when it comes to investing is just kind of stay centered. I mean, it doesn’t mean you’re asleep, and that’s what I’m going to I think that’s the next point I want to get to is there’s some elements of discipline that I think are involved in doing nothing.
So the second point I want to make is, I want to unpack kind of the emotional element of reacting because it even though you get maybe get the whatever dopamine hit from reacting and you you get out of this funk of, you know, the psychological heaviness of doing nothing and you and you and you react. There’s still a cost of reacting.
And let me go to 2011. Travel back in time for just a second. This was a very difficult time for any financial advisor and anybody in the money business, and people who are the money business or have investments.
During 2011, it was almost, if not more dramatic than 2008, which was the great financial crisis. As an example, the Dow Jones, the you know, the major index we always watch had like it was up and I had this in front of me on one on Monday.
It was up 634 points. Then on no, I’m sorry on a Monday it was up. It was down 634 points. So you wake up on Monday and it’s all red and everyone’s freaking out down on Tuesday. It was up for 29 points. On Wednesday it was down 519 points. And on Thursday it was up for 23 points. And at that time, that didn’t ever happen again.
It had a lot to do with the EU and the Greek, the Greek economy collapsing. And frankly, everyone was freaking out. Very emotional. We call that whipsawed in the in the business very much being whipsawed.
And no one was really calling me and saying, hey, Daryl, congratulations on your discipline and being, you know, stoic. They were all calling, saying, do do something, do something about this.
And I think that is that is a is a is a real hard position. That was hard position for me to be in and certainly hard position for clients to be in. But here’s what the point I’m trying to make is that making a decision to do something is actually not one decision is two decisions.
And there’s an emotional price of admission for these decisions, too.
So you have to get out and then you have to get back in. So if if you’re thinking about that, this is where your mind starts really messing with you. Because I’ve been down this road, you know, I yes, I won’t get into that. But yes, it just messes with you big time. Your mind starts playing strange games on you.
Like, okay, I got out. Let me give you an example. You get out and then you’re actually your mind starts rooting for the market to go down further because you don’t want to be wrong. Right? So that’s just an example of all the and and you’re watching this and you just you have competing teams that you’re rooting for.
You’re rooting for you to be right.
Which may be rooting against the markets to come out of it unscathed, which may be rooting against your money and what it could and should be doing. There’s these competing interests, and then you’re trying to say, when can I when should I get back in? And oftentimes you’re waiting for the dust to settle and it’s already way too late.
So there’s just so much emotional mess with those two decisions when you get out and when you get in. So doing nothing does circumvent, even though it’s not always pain free. Circumvent the pain that comes from trying to make those two decisions. The third. The third thing I would say is that boring strategy can often be can often be a better strategy.
Frankly, this is tricky. Again, kind of going back to the emotional weight. But let me give you an example for this is something I’ve seen and something I’ve I’ve been a part of, something I’ve done. And you have two decisions in your investment strategy. Let’s say you’re thinking of two strategies. Okay. Follow me for a second strategy. One is I’ve got an investment stock portfolio.
Let’s call it 100% stocks. What? It doesn’t really matter. And in my strategy I’m going to sell when it starts to go down. And I’m a buy again when it goes back up okay. Now your second strategy is just the traditional kind of I’m going to spread it out kind of stocks, bonds, international domestic. You know, I’m going to spread it out and I’m not going to mess with it.
Now let’s assume that both strategies have the same rate of return. Just let’s make that assumption. There’s so many variables in this. So are you about some of this stuff peripherally. But generally speaking let’s say they both have the same rate of return. I don’t think we recognize that the first strategy, owns real estate in your head, whereas the second strategy generally maybe it does, but it’s very little.
So a strategy that you have adopted that has the elements of getting in and out, as I alluded to before, will consume your mind while you’re at your granddaughter’s volleyball game. And so whereas as a, you know, the boring one, it may be boring and maybe it gets the same returns as the other one, but it doesn’t carry that emotional weight.
And I really would rather just live my life than have to carry that emotional weight. And the health consequences of of of those strategies are legit. Okay. The third or the fourth, the fourth element of this, and as I land the plane here is really important. And this is to stay on your toes, not your heels. You know, good goalkeeper is supposed to be on your toes.
Again. Theory is that in the center it’s better I think there’s probably other studies and some not a soccer, you know, researcher by any means, but there’s probably other studies that maybe I, I think about that study of, like, hey, you need to be in the center. I’m like, there’s probably more research that that would help me understand that.
But I think the point is still made. the idea of staying on your toes, I think is consistent, though I don’t think there’s any debate on that.
And because that’s really all sports, you know, I did martial arts or baseball or golf, whatever the degree of that you’re not on your heels.
I think that still applies to investments as well.
So the idea of being boring or not doing anything is not entirely passive. So don’t get me wrong, I don’t want you to be entirely past. I think it’s problematic when you’re tiredly passive. So let me give you some some ways that you can be active. First of all, do do financial checkups with your advisor. There has been times before, and I think Pax has done a really, really good job of chasing down clients, and not because we have to do there’s no I mean, I guess there is always economics involved, but there’s there’s not.
Like, I guess I’m reflecting back in the day when I used to be in the life insurance business, you would do financial checkups because in the life insurance business, that was your opportunity to convert from term to permanent life insurance. So that’s why 20 years ago when I got in the business, and that’s how I was trained in life insurance, that was the idea.
You do checkups because that’s your opportunity to convert from term to permanent. Silly. So silly as I look back in retrospect. But now we do checkups because we authentically really want to do checkups with clients. And sometimes clients don’t respond because they’re busy with life. And I get that. But we will pursue you. We will pursue you.
Because what happens sometimes and this is horrible, but a client may have a certain risk profile given market conditions, family dynamic.
And maybe they’re they’re heavily into bonds because they’re really nervous and they don’t know that they forgot that. And they haven’t seen their advisor for five years. And for some reason, in their mind, they thought they were 100% stocks. And they didn’t they didn’t remember the conversation. And and they’d look up and they’re like, wait, I thought my portfolio was this and it’s doing this.
And we’re like, yes. And we’ve been trying to tell you so we could course correct. That’s the idea of, activity that I think is really important is, at the very least to make sure you do an annual checkup at the very least. And so that the idea of being completely passive, completely boring, doing nothing, I want to set that aside and say, you should do something that’s at least check in with your advisor.
The second thing I do this is more so situational depending on the person is, you know, manage your information. Diet. I do have a method.
I get so much content. I read about the markets, as you would imagine all the time, and watch videos and news and all that stuff. But I do have a system in which all the content that I get, I, I can’t consume it all.
So I put it in a folder and every Tuesday I, you know what I what is urgent or maybe critical. I read then, but much of it is just interesting. So I put it in folder and I go in that folder and my outlook every Tuesday and half of it is irrelevant. So that’s just a good way to just kind of manage your information diet.
So if you do have a desire to get that information and you want to be active in that regard. I’d also say to that as you get your information, make sure you know your the biases that that exist out there. And I mentioned Glenn Beck a lot of times, and maybe there may be one day where he’s mad at me, but he has so much bias towards gold that it’s that it comes out in all of his content.
And, you know, he’s going to tell you whenever the market goes down, he’s always going to tell you the world ending, and then he’s going to have the gold commercials. So just know that these biases exist. If you watch CNBC in the morning, which is one of my favorite economic shows, despite some of the stuff, the nonsense. But you do know who the host, where the hosts stand, and they’re actually pretty transparent about it, at least most of them.
I say most of them, at least the Joe Kernan and Andrew Ross Sorkin, those two, you know, where they stand. And I and I find comfort in knowing that because when then they talk, I know the lens that they’re talking through. So just know the bias of your sources. And then lastly, I would say if you’re if you’re trying to be active to a certain degree, just be sure to anchor to some truths.
You know, people, despite the market being disruptive, people are still going to buy toilet paper and toothpaste and tires and all that stuff. And businesses are still going to sell stuff and we’re still going to buy stuff. And you know that those truths exist. And, you know, I’ll put this, this reference in and so you can see it for yourself.
But 70% of the time, historically, the market has gone up, you know, absent of new information. I’m going to I’m going to lean into that historical basis. But every year it’s a coin or I shouldn’t say every year, 70% of the time from an annual perspective, again, the data will be in the show notes 70% of the time annually it goes up, but daily it’s a coin flip.
So I just anchor to the idea that there’s a lot of volatility in in the short term, but long term it generally works out. And so just make sure you have some some good anchors and then you know, wrestle with those anchors with your advisor. Those are helpful. So that way you can have a filter in which you you get decisions and you don’t just simply, kind of fall for anything, especially when Chicken Little comes screaming, which, you know, we’re closer to the next recession than the last one.
So you got to be be on your toes. So I hope that summarizes a lot to digest, but summarizes kind of the idea that doing nothing, I think is understated. And it doesn’t it doesn’t require you to be completely passive. I don’t think jumping to the left or the right is necessarily the best bet. If you know, if you want to talk about trying to time the market, I would suggest that most of the time wisdom is stoic and is in the center and finds a way to block out the noise and and makes makes good investment long term decisions so that it doesn’t occupy real estate in your head and become an emotional and, frankly, a health burden to you. So I hope that helps. Thank you again for listening. And as always, I want to remind you, you think different when you think long term. Have a great day.
Resources:
What Percentage of the Time Do Stocks Go Up? – by Ira Roth
Action bias among elite soccer goalkeepers: The case of penalty kicks – ScienceDirect
Dow rises 423 as stocks whipsaw again – Orange County Register
S&P 500 Price Return, Dividend Return, and Total Return
Capital markets are adapting to retail investor growth | RSM US
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