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Why You Avoid Money Decisions

Posted by wpadmin on Nov 25, 2014 4:44:32 AM

Not deciding – is making a decision -to do nothing. Sometimes it is because we have way too many choices. According to Statista we have 8,970 mutual funds from which to choose. It can be overwhelming!

Sometimes we fear we’ll regret the choice we made. This is called Regret Aversion and is a common human trait. If we don’t decide, it has been shown we will have less regret than actually making a decision that turns out badly. This is because we hold ourselves accountable for making a decision, and feel uncomfortable facing the music. If we don’t make a decision, we think no one is accountable.

In reality, whether we decide or don’t decide, we’re accountable for both actions. Will you always be right? No, because you’re human. But making an educated decision is probably better than doing nothing. Here’s how to start:

It is Human to be Confused. Know that if there are too many choices, no human can possibly make an easy decision. You’re perfectly normal if you feel confused and intimidated.

Decide on the Goal for your Savings. Is it college in 5 years, or retirement in 30 years? The timing of your goal defines how much risk you can take with the market ups and downs. Mutual funds are rated by risk. If this is your first fund, you may want to test your ability to withstand the market ups and downs by getting a conservative fund to start. This decision will narrow your choices by thousands. OK, you’re on a roll here…

Look at what Investments You Have, if any. You don't want all your eggs in one basket. If you have a few mutual funds, you can knock out all the others in the same categories as the ones you have. You’ve just narrowed your choice by thousands more. You’re getting there….

Look at Performance. Past great performance does not predict future performance. But if you go to MorningStar.com you can read reports from analysts and see how many stars a fund has received. The more stars, the better the performance. This reduces your choices even more.

If you need Help, go to an Objective party like TD Ameritrade or Schwab. They will help you with choices, and do not represent one mutual fund company. They also value your business if you have just a few thousand dollars to start. Everybody has to start saving sometime!

Carrie Rattle is a Principal at BehavioralCents.com, a web site for women focused on the mind and money behaviors. She has worked in the financial services industry for 20+ years and hopes to inspire women to better prepare themselves for financial independence. Thoughts always welcome: carrierattle@behavioralcents.com.

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