In an ideal world, your life goals and financial resources would lead you down a path where you have to choose route A or route B from time to time, but, for the most part, the options and expected outcomes are understood.
Of course, financial planning and investing is more complex than coming to a Y in a country road and making a simple decision. Instead, occasionally it’s as if you were dropped in the middle of an unknown metropolis where freeways intersect and on and off ramps intertwine with directions that aren’t clear.
Given the multitude of investment options (401k, IRA, 403b, 529, mutual funds, ETFs, etc.) and the infinite possibilities for combining investments into a coherent money management strategy, it’s no surprise that people often struggle to make choices.
As Barry Schwartz wrote in The Paradox of Choice, “there is a cost to having an overload of choice.” It leads to three effects:
- Decisions require more time and effort (How much is your time worth to you? Do you find it to be a valuable use of your time to evaluate and monitor investments?)
- Mistakes are more likely (With more choice comes less certainty in the outcome of any specific choice.)
- Psychological consequences of mistakes are more severe (We beat ourselves up for failures more than we celebrate successes.)
Often, fear of choice leads to missed opportunity or the assumption that no decision is better than the wrong decision.
One aspect of a good financial advice relationship is the development of confidence in your direction. A good advisor uses insight to make actionable decisions, filtering out the noise in the pursuit of financial security.
The primary focus of our client relationships is to help people shine a light on their goals, identifying things that require planning, money and time to accomplish. Then, we narrow down the choices for how to proceed and make personalized recommendations. The paradox is answered with conviction for a plan that is actionable, effective and monitored by professionals.
You will continually be presented with transitions in life. Many options will be presented for how to address each step from the dual perspective of your goals and your financial resources. Getting guidance about each will help you overcome the paradox of choice.
