Benjamin Beck, CFP®A client asked me a great question recently.
He wanted to understand how our strategy compared to simply buying an S&P 500 ETF and calling it a day.
He wasn’t combative — he was curious. Thoughtful. The kind of question I love, because it forces us to pause and examine the machinery of what we do.
He asked, “Ben, if an ETF has almost no tax drag, and I can hold it for decades, wouldn’t that be more efficient than a portfolio of individual stocks that might generate capital gains along the way?”
That question led us into a long conversation — one that touched on taxes, structure, behavior, and what really drives long-term success.
It’s the kind of conversation I wish every investor could hear.
So let’s pull back the curtain a bit.
How ETFs Work, and Why They’re Brilliant
ETFs are one of the most elegant financial inventions of the last fifty years. Most investors don’t realize how simple — and brilliant — they are.
A mutual fund has to sell securities for cash when investors redeem shares, which triggers capital gains inside the fund.
The ETF avoids this entirely through something called in-kind creation and redemption.
Instead of selling, the ETF trades baskets of stocks directly with large institutions called authorized participants. Those participants hand the ETF a basket of stocks in exchange for shares of the ETF itself, or vice versa.
That process is done “in kind,” meaning no taxable sale occurs.
The result: almost no realized capital gains — no surprise 1099s at year-end. It’s a beautiful mechanism, and it’s one reason the ETF has become the default choice for tax-efficient, low-cost equity exposure.
While ETFs are exceptional tools for broad-market exposure, our philosophy at Beck Bode focuses on intentional ownership — building a concentrated portfolio of high-quality, high-earning businesses with durable competitive advantages, strong balance sheets, and the potential to compound capital over time. We believe that owning a thoughtfully selected group of great companies — and holding them through full market cycles — is what creates meaningful long-term wealth.
The Real Determinant
The dominant determinant of long-term, real-life financial outcomes isn’t investment performance.
It’s investor behavior.
Not the fund.
Not the manager.
Not even the tax treatment.
It’s the human being holding it.
You can own the most tax-efficient ETF in the world, but if you can’t stay invested through fear, volatility, and uncertainty, the efficiency won’t save you.
Behavior trumps structure every single time.
The difference between investment returns and investor returns — that’s the behavior gap. And the behavior gap is the real destroyer of wealth.
The Three Questions
In our investment philosophy, everything begins with three timeless questions — not about budgeting or planning, but about the discipline of equity ownership itself. They come from my mentor, David Mallach, and his book Dancing with the Analysts:
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What do you buy?
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When do you sell?
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Where do you reinvest the proceeds?
These aren’t casual prompts; they are the foundation of our process. Every decision we make ties back to them.
We don’t build portfolios to react to markets; we build them to enforce a method. Because the method, consistently applied, is what produces durable, repeatable results over time.
Active vs. Passive: A False Dichotomy
The active versus passive debate is one of the longest-running and least useful conversations in our industry.
I don’t care whether a portfolio is labeled “active” or “passive.” Those are marketing terms.
What I care about is whether it owns the productive engine of capitalism — businesses — and whether the investor can stay the course long enough to reap the rewards that ownership produces.
Our strategy at Beck Bode happens to be systematic and disciplined.
We’re active in that we buy individual companies.
We’re passive in that we don’t guess where the market’s going next week.
We don’t sit in cash waiting for permission.
We don’t “trim winners” because they’ve run up.
We let compounding do what compounding does — in full view, with rules, not emotions.
When someone asks, “Which one’s better — active or passive?” I usually respond with a question of my own:
“Better for whom, and for what time horizon?”
Once you’ve defined purpose, the debate disappears. The goal isn’t to pick the perfect strategy. It’s to pick a philosophy you can actually execute through every market cycle.
Why We Believe in Our Methodology
Our entire framework is built around behavioral discipline — not prediction.
We focus on:
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Equity ownership as the asset class most capable of compounding above inflation over time.
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A rules-based process that keeps emotion out of decision-making.
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Regular review and accountability through the Goals Planning Statement (GPS).
Successful investors share a few core characteristics:
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Faith in the future — a reasoned belief that progress continues.
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Discipline — the willingness to sit through pain without breaking the plan.
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Patience — understanding that volatility isn’t a penalty; it’s the price of admission for long-term growth.
Our job isn’t to outguess the market. It’s to build a system that keeps our clients behaving like investors — not speculators — no matter what the headlines say.
Behavior Over Product
When I explained to my client how ETFs work, he leaned back and said,
“That’s fascinating. So really, it’s not about which one pays fewer taxes; it’s about which one helps me stay invested.”
Exactly.
It’s not about the product. It’s about the process.
The ETF investor and the Beck Bode investor are both equity owners. Both depend on capitalism’s long-term upward trajectory. The difference is discipline — and discipline is a behavior, not a product feature.
If I could guarantee every investor in America the ability to hold an S&P 500 ETF for 30 years without flinching, I’d tell them to do that.
But the problem is, most won’t. They’ll flinch in year two, sell in year five, buy back in year six, and spend the next twenty years apologizing to their future selves.
That’s why behavior, not investment selection, is the real engine of compounding.
A Little Socratic Reflection
When people talk about the stock market, they tend to focus on the market.
I like to turn the question back to the investor.
When someone asks:
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“Which performs better, active or passive?” → Which one can you actually stick with when things get hard?
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“Should I worry about tax drag?” → Is the biggest cost taxes — or abandoning your plan at the worst time?
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“What if I pick the wrong fund?” → What if you pick the right one and still don’t stay in it?
The Discipline Dividend
In our experience, the greatest returns don’t come from finding the next great investment product.
They come from behavioral endurance — the ability to stay invested through fear, noise, and the temptation to do something.
Our strategy, our questions, and our process all exist to protect that endurance.
They create a structure that allows you to behave well, which in turn allows your money to work well.
That’s the real advantage of what we do.
Not that we found the perfect strategy — but that we built a framework that makes it easier to stick with one.
The Closing Thought
It doesn’t matter whether you own an S&P 500 ETF or a carefully constructed portfolio of companies.
The real question is whether you can remain an investor through all the noise.
The market will test you.
The news will bait you.
The world will hand you reasons to stop believing in your own plan.
But behavior — calm, disciplined, stubbornly optimistic behavior — is undefeated over time.
Investment performance is theory. Investor behavior is reality.
Be Relentless, everyone.
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Ben Beck is Managing Partner & Chief Investment Officer at Beck Bode, a deliberately different wealth management firm with a unique view on investing, business and life.
Investor Behavior & Long-Term Strategy FAQs
1. What is the dominant determinant of long-term investment success?
A: The greatest driver of long-term results isn’t performance — it’s behavior. Markets rise and fall, but the investor’s ability to stay invested through uncertainty determines the real outcome. The compounding effect only works when discipline holds. Investment performance is theory; investor behavior is reality.
2. How do ETFs minimize taxes for investors?
A: Exchange-Traded Funds (ETFs) use a process called in-kind creation and redemption. Instead of selling stocks for cash when investors buy or sell, ETFs trade baskets of securities directly with large institutions called authorized participants. Because no taxable sale occurs inside the fund, most ETFs avoid distributing capital gains — making them among the most tax-efficient investment vehicles available.
3. What is the “behavior gap” in investing?
A: The behavior gap is the difference between investment returns and investor returns. It happens when people let fear or excitement dictate their decisions — selling during market declines or chasing performance at peaks. Even a great portfolio can’t overcome emotional timing mistakes. Closing the behavior gap means following a clear plan and maintaining discipline, especially during volatile periods.
4. Is active or passive investing better?
A: Neither label guarantees success. “Active” and “passive” are marketing terms, not predictors of results. The right approach depends on your time horizon, temperament, and ability to stay consistent. At Beck Bode, we combine the best of both — actively selecting quality businesses while allowing compounding to work over the long term without guessing at short-term market moves.
5. What is the Beck Bode investment philosophy?
A: Our philosophy centers on behavioral discipline and equity ownership. We follow three guiding questions: What do you buy? When do you sell? Where do you reinvest? Every client’s plan is managed through our Goals Planning Statement (GPS), which ensures that each decision aligns with long-term objectives rather than short-term emotion or speculation.
6. Why do many investors underperform their own investments?
A: Research shows that the average investor earns far less than the funds they own because of emotional decision-making. Investors tend to sell when fearful and buy when optimistic — often at exactly the wrong times. Staying invested through volatility, guided by a clear strategy and trusted process, is the surest way to capture full market returns.
7. What does it mean to invest with discipline?
A: Investing with discipline means following a consistent process rather than reacting to headlines or emotions. It’s about having predefined rules for when to buy, when to sell, and how to reinvest — and sticking to them regardless of market noise. Discipline builds consistency, and consistency is what compounds wealth over time.
8. How can an investor stay the course during volatile markets?
A: Volatility is normal — it’s the price of admission for long-term growth. Successful investors prepare for it emotionally and financially. They maintain confidence in their plan, keep enough liquidity to avoid forced selling, and revisit their strategy regularly. Having a structured process and a trusted advisor helps transform market turbulence into long-term opportunity.