The More You Touch It, The Less You Have 

In the world of finance, saying that money is like a bar of soap seems pretty crazy at first glance, but bear with me for just a second and it might not seem so crazy after all. Just like a bar of soap gets smaller as you use it, investments tend to lose value when excessively traded or overly managed.   

Consider it like this: every time you make a trade or move money around, there are typically transaction costs involved such as commissions and fees, capital gains tax, or other expenses. In this way, every time your money is touched, a piece of it is chipped away just like a bar of soap slowly gets smaller with every use.  

The other issue that I have started to recognize with excessive trading or constant moving of money is that people start to make decisions based on emotion or news headlines rather than performance data and empirical evidence. This, of all the mistakes I have witnessed in people managing their money, is probably the one I consider as having the highest potential for downside risk. When it comes to headline news, most often by the time you read about it, that news has already been baked into the price of an underlying security and is unlikely to affect the price further. Emotional investing, such as buying securities of companies purely because you like the company or because you think you can time the market, etc., has also been shown through countless studies to be a vastly inferior strategy to that of a buy and hold strategy for the average investor. Now this isn’t to say that there aren’t fund managers who have proven that with an active trading strategy they can beat the market, but those are people with vast knowledge of financial markets and a time-tested approach to an active trading strategy. For the average retail investor who typically has much less financial knowledge and far fewer resources available, this strategy typically produces worse results than a diversified buy and hold strategy.  

To state it simply, just as over scrubbing with a bar of soap can irritate the skin and dwindle the amount you have to work with, excessive and emotional trading can irritate your financial health and potentially leave you with less than you started with.