In his
article, “The Top Ten Money Excuses,” Dimensional Funds Vice President Jim
Parker suggests that we often deceive ourselves when it comes to our own money.
How can this happen, one might ask? It can happen by constructing a façade of
logical-sounding arguments that can often lead to decisions that are counter to
our own long-term interests. Read on to learn about those top ten arguments and
excuses along with how to avoid them.
The
Top Ten Money Excuses
Jim Parker
Vice
President
Human
beings have an astounding facility for self-deception when it comes to our own
money.
We tend to
rationalize our own fears. So instead of just recognizing how we feel and
reflecting on the thoughts that creates, we cut out the middle man and
construct the façade of a logical-sounding argument over a vague feeling.
These
arguments are often elaborate, short-term excuses that we use to justify
behavior that runs counter to our own long-term interests.
Here are
ten of these excuses
1) "I
just want to wait till things become clearer."
It's
understandable to feel unnerved by volatile markets. But waiting for volatility
to "clear" before investing often results in missing the return that
can accompany the risk.
2) "I
just can't take the risk anymore."
By
focusing exclusively on the risk of losing money and paying a premium for
safety, we can end up with insufficient funds for retirement. Avoiding risk can
also mean missing an upside.
3) "I
want to live today. Tomorrow can look after itself."
Often used
to justify a reckless purchase, it's not either-or. You can live today and
mind your savings. You just need to keep to your budget.
4) "I
don't care about capital gain. I just need the income."
Income is
fine. But making income your sole focus can lead you down a dangerous road.
Just ask anyone who recently invested in collateralized debt obligations.
5) "I
want to get some of those losses back."
It's human
nature to be emotionally attached to past bets, even losing ones. But, as the
song says, you have to know when to fold 'em.
6) "But
this stock/fund/strategy has been good to me."
We all
have a tendency to hold on to winners too long. But without disciplined
rebalancing, your portfolio can end up carrying much more risk than you
bargained for.
7) "But
the newspaper said…"
Investing
by the headlines is like dressing based on yesterday's weather report. The news
might be accurate, but the market usually has reacted already and moved on to
worrying about something else.
8) "The
guy at the bar/my uncle/my boss told me…"
The world
is full of experts, many who recycle stuff they've heard elsewhere. But even if
their tips are right, this kind of advice rarely takes your circumstances into
account.
9) "I
just want certainty."
Wanting
confidence in your investments is fine. But certainty? You can spend a lot of
money trying to insure yourself against every possible outcome. While it cannot
guard against every risk or possible outcome, it's cheaper to diversify your
investments.
10) "I'm
too busy to think about this."
We often
try to control things we can't change—like market and media noise—and neglect
areas where our actions can make a difference—like the costs of investments.
That's worth the effort.
Given how
easy it is to pull the wool over our own eyes, it can pay to seek independent
advice from someone who understands your needs and circumstances and who holds
you to the promises you made to yourself in your most lucid moments.
Call it
the "no more excuses" strategy
