Why is it that when we roll dice and need a higher number, we throw them harder — and when we need a lower number, we throw them more gently?

There is no correlation between the force applied to the dice and the outcome.
Yet we behave as if there is.

This is the illusion of control.

What Is the Illusion of Control?

The illusion of control is a cognitive bias that leads us to focus excessively on areas where we have little or no actual influence.

Politics.
Macroeconomics.
Tax regimes.
Market movements.

All of these factors influence our short- and long-term decisions.
But we have no direct impact on them.

Discussing and complaining about these topics is natural. We are constantly bombarded with information about them.

Take inflation, for example. In recent years, it has dominated headlines, television debates, forecasts, surveys, and political commentary. We receive continuous updates, projections, and expert opinions.

But the real question you should ask yourself is:

What degree of control do I actually have over this?

If the answer is “none,” then that topic should not drive your investment decisions — because you cannot confront it or mitigate it directly.

Where Control Ends — And Where Illusion Begins

There are macro-areas where none of us has control.

And then there are more subtle areas — where we merely believe we have control.

These are the dangerous ones.

They are not under our control, yet we convince ourselves that they are.

That illusion distorts our decisions, increases emotional reactions, and pushes us toward unnecessary action.

And in investing, unnecessary action is often the most expensive mistake.

Taxes: No Control

Tax regulation is highly complex, constantly evolving, and often very difficult to interpret for non-professionals.

Does it make sense to waste time complaining about taxation or to analyze every single line of regulation looking for loopholes to save €50 per year? In my opinion, no. We should accept it as it is and adapt without overthinking it.

If we need to understand tax rules, it makes sense to rely on a professional to reduce the risk of mistakes and avoid wasting time educating ourselves on a topic that does not make sense to master in detail.

The Economy: Illusion of Control

GDP, inflation, interest rates, unemployment, current data and forward-looking estimates. These are all interesting topics and can be enjoyable to discuss with friends or colleagues. At the same time, turning on the TV or reading the news and learning that the economy is deteriorating, inflation is surging, unemployment is at historic highs, and a recession is approaching can be a source of anxiety.

Is any of this controllable? No. Therefore, it does not deserve more time than the casual conversations we have at the coffee machine in the office.

Some may argue that understanding the economic environment can provide useful information about the future and therefore require adjustments to our investments. This is partly true only when economic scenarios are structurally transformed. In those cases, it may make sense to adjust our asset allocation with a forward-looking perspective.

For example: after years of near-zero interest rates, rates increase sharply in a historically unique way. It may make sense to adjust our asset allocation and increase our bond exposure. But this is a change made after an exceptional multi-year period, and we have no influence over the economy itself — we can only adjust how our capital is allocated.

If semiannual inflation moves from 5% to 6%, can we do anything to influence that change? No. We take note of the information and move on.

Stock Market Performance: Illusion of Control

If you believe you can predict stock market movements — or even better, the performance of specific stocks — over the coming years, I don’t understand why you are reading this. Go and make money effortlessly.

The explanations for why a stock rises or falls are always provided after the fact, and no one truly knows the real reasons behind certain movements.

What we do know is that the stock market is a system composed of millions of participants with different objectives and time horizons. The reasons why one individual buys and another sells are numerous. Multiply this uncertainty by millions of transactions and you have a complex, largely indecipherable system.

Technical and fundamental analysis are forms of illusion of control. We believe we can predict future trends with reasonable certainty, but the reality is that the deeper we dive into observing markets — and the shorter our time horizon — the more what is known as “noise” increases.

Market movements without clear explanations occur not only because of rational decisions, but also because of emotions: fear, anxiety, euphoria, depression — emotions that characterize entire economic cycles.

In such a system, the only truly controllable variable — and the only one we can meaningfully work on — is asset allocation.

What Is Controllable in Investing

Asset Allocation: Controllable

Tell me your asset allocation and I’ll tell you who you are.

Your asset allocation — how your capital is distributed across assets (stocks, bonds, cash, real estate, commodities) — is one of the most important variables and one over which you have direct control.

It must accurately reflect your investment profile: risk tolerance, saving capacity, cognitive biases, hopes, and fears. It should be structured with extreme care to ensure that you can reach your financial goals without overestimating your tolerance for risk.

A directly controllable variable linked to asset allocation is costs.

Costs: Controllable

In my article on ETFs, I explained how significantly investment profits can vary — even with identical returns — depending on management costs.

A difference between 0.15% (a typical ETF) and 2% (a typical actively managed fund sold by banks) can lead to a difference in total returns of over 100% over 20 years.

Another cost-related variable you can control is the number of transactions you execute each year. Every time you change your asset allocation — buying or selling assets — you incur transaction costs.

They may seem small per trade, but over time they erode your profits.

How Much You Save: Controllable

The portion of income you manage to save each month is a controllable variable — and the most important one of all — because it allows you to grow your net worth over time.

To do so, you must not only save but also invest those savings and benefit from long-term compound interest.

Education and Investing in Yourself: Controllable

Investing in yourself is a controllable variable — and one that pays off over time.

It increases your awareness in specific areas and allows you to aim for higher-paying job positions. Among all controllable variables, this may be the most demanding to manage because results are never visible in the short term. But over the long run, it is one of the most rewarding.

And it does not necessarily cost much.

Accessing a better job position allows you to increase your monthly savings rate, grow your investments, and generate more value over time. That is why this is the variable everyone should start investing in from a young age.

I understand that focusing only on variables that require time to bear fruit may not feel exciting or stimulating. But they are the ones that pay off in the long run.

And I am not talking about generating slightly more or slightly less value. The difference between working on controllable variables and non-controllable ones is the difference between generating value — and generating zero.

DISCLAIMER
I am not a financial advisor, but an individual investor sharing my personal journey. This article is for educational purposes only. Past performance does not guarantee future returns. Taxes, fees, and investment outcomes may differ from historical data. Carefully consider your personal situation, risk tolerance, and financial goals. If in doubt, consult a qualified professional.

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