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There’s a classic scene in the 1999 movie Fight Club where Edward Norton’s character punches himself in the face. He then tosses himself backward onto a glass coffee table, throws his body into a bookshelf and pummels his face until he bleeds. I remember this scene, 21 years later, because it was so darn abnormal.

Unfortunately, when it comes to investing, this kind of behaviour is far too common. Most of us don’t smash our heads into laptops after logging into our accounts. But when faced with a market crash, too many people make self-inflicted cuts, according to research from Fidelity Investments. The firm reports that almost one-third of its investors over the age of 65 liquidated all of their stock-market assets between Feb. 20 and May 15 this year. In other words, when the markets crashed, they sealed in their losses.

In contrast, those who had Zen-like calm and a portfolio of exchange-traded funds are expected to see a profit for the year so far, despite the market’s madness. And it wouldn’t have required a sophisticated ETF, a special allocation or even deft trading. In fact, almost any diversified allocation of stocks and bonds should be in the black year-to-date.

Vanguard, iShares and Bank of Montreal each offer all-in-one portfolio ETFs that charge annual fees between 0.17 per cent and 0.25 per cent a year. Despite the COVID-19 market swings, they are all up for 2020.

For example, BMO’s Conservative ETF (ZCON) comprises about 60 per cent bonds and 40 per cent stocks. In other words, it’s nothing special. No fancy fund manager moves the money around, trying to dodge and weave when the markets rise and fall. Yet from Jan. 1 to Aug. 21 this year, this conservative, diversified fund gained 5.8 per cent. (All ETF performance data is total price return from Morningstar.) If you had a similarly allocated portfolio of individual ETFs, you might have done even better – if you didn’t speculate. After all, you could have paid even lower fees with the same allocation.

Skeptics might argue that this fund’s conservative allocation helped it make money during the market’s roller coaster. But riskier blends made money, too. BMO’s Balanced ETF (ZBAL), for example, includes about 60 per cent stocks and 40 per cent bonds. Its year-to-date return is 4.3 per cent. Once again, investors in individual ETFs (paying even lower fees) would have done even better with the same allocation – if they kept their heads.

Despite this year’s market volatility, investors in even higher-risk portfolios should have made money, too. BMO’s Growth ETF (ZGRO) is made up of about 20 per cent bonds and 80 per cent stocks. But despite its higher risk allocation, it also earned a profit. Its year-to-date return is 3.5 per cent.

Plenty of people fared far worse this year. If your portfolio didn’t match or beat these ETFs, you either paid high investment fees, took unnecessary risks or fiddled with your money. It’s tempting to speculate when the media calls for financial Armageddon. But even pros that gamble crash onto coffee tables.

Hedge-fund returns provide painful evidence. The HFRX hedge-fund index measures surviving hedge-fund results. Such managers are supposed to see the future. If they think stocks will fall, they can short the market – collecting profits for investors if they guess right. They can pour everything into gold or bonds if they think they will soar. They can move everything into equities if they think stocks will fly. If anyone could stickhandle around the COVID-19 mess, you might give credit to a hedge-fund manager.

But that faith would be misplaced. Measured in U.S. dollars, the average surviving U.S. hedge fund gained about 1.16 per cent year-to-date as of Aug. 20. Over that same period, Vanguard’s simple balanced index fund (60 per cent U.S. stocks and 40 per cent U.S. bonds) gained about 7.3 per cent. No matter how you slice them, globally diversified portfolios of stock and bond ETFs beat these masters of the universe.

Effective investing is simple: own a diversified portfolio of ETFs or an all-in-one portfolio ETF. Ignore everyone who claims they can see the future. Ignore your inner voice that says, “Do something now.”

Like Fidelity’s investors who sold when stocks crashed, fear and greed cause self-inflicted pain. Always remember that nobody can see the future. I can’t promise a tonic to control your inner fears, but that Fight Club clip on YouTube might offer some laughs and a remedy.

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