In Saturday’s New York Times, Alina Tugend tackled the complicated subject of choosing. More options, she pointed out – and the research backs her up – don’t necessarily benefit consumers, job-seekers, even daters looking for someone to share their lives. Having a plethora of options, she points out, seems to have two distinct downsides. One, it makes those people who do eventually choose less happy with their picks; they wonder if the grass would have been greener on the other side. Two, and more dangerously, it stops others from choosing at all.
I’m worried about the second group – in particular where their money is concerned. In the same section of Saturday’s paper, Ron Lieber wrote about keeping your money safe from the next bubble. (Yes, there will be one. The only real questions are when? And in what?) His story pointed out how some financial advisers are starting to employ more complicated – more diversified – strategies in order to protect their clients’ interests. In other words, more choices – precisely the stumbling block that will keep too many people from investing at all.
I’ve always thought about the world of personal finance as having two hemispheres. There is the clear hemisphere, which includes insurance, credit cards, auto loans and mortgages. Ask me a question in this hemisphere – Should I pay off this credit card or that one? Is this mortgage better for me or is that one? – and I can give you the right answer. Then there’s the foggy hemisphere where questions don’t have right answers. They may have answers that are more likely to be correct, in the future, when it all shakes out. But there are very few guarantees. This is where investing falls. Should I buy this stock or that one? Will I be better off with a mutual fund that has performed well over the past decade, or a newer one that has shown steam out of the gate? It’s this fog that keeps people from investing altogether.
And that’s not OK. Because investing – in the markets – is the only way for most people to make certain that their money keeps pace with taxes and inflation. In other words, that it doesn’t lose purchasing power over time.
The solution I embrace is one posed by Swarthmore College’s Barry Schwartz, author of The Paradox of Choice. Dive in as soon as you find something that’s good enough. The key is understanding that investing money is something you do in order to meet tangible goals. You want to replace enough of your income in retirement so that, when supplemented with Social Security, you can live comfortably. You want to cover a certain portion of your child’s college tuition. Once you know what you’re aiming for, then you can figure out how much you need your investments to yield in order to get you there. You’re not aiming for the sky, the very best mutual fund in the rankings, but one that will meet your goals, more or less.
The more-or-less concept of the equation is one women have a particularly tough time wrapping our brains around. I know it’s cliché, but we like to cook with recipes and we like to drive with directions. We like to know there is a correct answer before we tackle the question. In the foggy hemisphere, this is simply not possible. But not tackling the question at all is far more dangerous than diving in after doing your homework, assessing a few good options and picking one of them. And if you can’t? If you’re so stuck you can’t choose? You need help in the form of a financial adviser. Go to napfa.org to find a fee-only financial adviser in your area, or to garrettplanningnetwork.com to find one willing to bill you by the hour.