Investing: A Weekend Thought
By Art Carden
This post appears in the Facebook discussion group for my LearnLiberty Personal Finance Course.
A Weekend Thought on Investing and Personal Finance: If behavioral economics and psychology have taught us anything, it’s that people are not very good at making “optimal” decisions about how to use their time, talent, and treasure. A bit of introspection suggests that it’s probably true of all of us on one margin or another.
We tend to make the perfect the enemy of the good. With investing, a lot of people get overwhelmed and default to “I’ll do it later” (where “later” never comes), and they end up in the unfortunate position of many people who are facing retirement within the next decade or two and who have nothing saved.
Therefore, it’s a good idea to have lots of ways to trick ourselves into doing the right thing. In his book “I Will Teach You To Be Rich,” Ramit Sethi argues for “the 85% solution:” give yourself permission to get 85% of perfect. For most people, the choice they make isn’t “8% with high variance or 4% with low variance?” It’s “did I invest at all?” 85% of something is better than 100% of nothing; sadly, a lot of people get overwhelmed and choose the latter and promise to do it “later.” Later never comes.