Trading is the price of your own restlessness

What follows is an argument about the cost of trading activity, and about where the received version of it stops being true.

What a trade actually costs

A dealing charge is the visible part; the spread between buying and selling prices is paid on every round trip and is rarely noticed. In a taxable account a sale can also crystallise a tax liability, and the rules for this differ substantially between countries.

There is also time out of the market between selling and buying, which is a cost with no invoice. Individually these are small, which is why they are tolerated repeatedly.

The evidence, with its caveats

Studies of individual investor accounts have generally found that more active traders earned lower net returns than less active ones in the same samples. The finding has been reproduced in several markets, though the size of the effect varies and the samples are not all comparable. The most likely explanations are costs plus poorly timed decisions rather than any single dramatic mechanism.

It is a robust direction rather than a precise law, and it is enough to justify caution about activity.

Action bias is strongest when it hurts

The desire to act peaks during sharp market movements, when spreads can widen and decisions are made under stress. Doing nothing during those periods feels negligent, because the situation appears to demand a response. That feeling is a reliable feature of falling markets rather than information about what to do.

In practice, a pre-written plan exists precisely to occupy the space where that feeling would otherwise operate.

Rebalancing is not the same as trading

Rebalancing back to a written target is a rule being executed, not a judgement being made, and it has a defined purpose. It still costs money, which is a reason to do it annually or on a drift band rather than continuously. Using new contributions to rebalance avoids most of the cost and, in taxable accounts, most of the tax.

The distinction to hold onto is between following a rule and responding to a feeling.

Count it once a year

Add up dealing charges and estimated spread costs for a year and compare it to your annual platform and fund charges. For active investors the trading costs are frequently larger than the fees they spent time minimising. The exercise is uncomfortable, which is why it is the useful one.

It also makes the following year cheaper without requiring any willpower, because the number is now visible.

Cheaper trading does not mean cheaper investing

Reductions in dealing charges in many markets removed the most visible cost while leaving spreads and tax in place. Lower visible costs also tend to increase how often people trade, which can raise total costs even as the per-trade charge falls.

The relevant number is what activity costs you in a year, not what it costs per transaction. That framing is the one that stays correct as pricing changes.

The takeaway

Total a year of trading costs. That number is the invoice for restlessness.

Small and repeatable beats ambitious and abandoned, almost every time.