Don't Let Investor Inertia Wreck Your Retirement

March 23, 2016
Bill Schu

Many people are less diligent about pursuing good dental health than they are about their health in general, perhaps due to a lack of appreciation of all the things that can go wrong when dental care inertia sets in. The same can be true for investors.

Many people are less diligent about pursuing good dental health than they are about their health in general, perhaps due to a lack of appreciation of all the things that can go wrong when dental care inertia sets in. The same can be true for investors: the pain of inertia may not seem so immediate, and can therefore be pretty easily ignored. But just like in the case of dental health, investor inertia can bring significant pain.

You’re a dentist, not a physics professor, so here’s the definition of inertia: “the property of matter by which it retains its state of rest or its velocity along a straight line so long as it is not acted upon by an external force.” For the purposes of the investor, we can go by the common way of thinking about it: an object at rest tends to stay at rest.

When it comes to your retirement investments, are you at rest? Are you putting saving off for tomorrow? A better time? That next raise? Once the dental school debit is paid off or the kids graduate from college?

If so, take a baby step forward. You may find that the corollary to inertia—objects in motion tend to stay in motion—is also true. Let’s get you started.

Start now. Putting aside even a small amount now can be the difference between trying to play catch-up in later years and reaping the rewards of compounding. Compounding is when your savings and investments earn interest, and that gets added to the funds, and then that earns interest. If it sounds like it might be a trivial amount, it’s not. Over time, compounding can really add up.

Set up for the future. As you know, attracting a great staff and keeping them happy is one of the keys to the long-term success of any practice. If you run your own practice and are in position to do so, you may consider offering a workplace retirement program. Self-employed individuals and small business proprietors are eligible to contribute to what’s called a simplified employee pension plan—an SEP—which can promote savings for both you and your staff. Best of all, any contribution you make on behalf of your employees is tax-deductible and are excluded from your employees’ gross income. This resource from the IRS has all the rules to follow when establishing such a plan, as well as the details for getting started.

Start small. While it’s wise long-term to max out your retirement plan if you can, and it’s always wise to max out the employer-matching part of any plan, don’t let the perfect be the enemy of the good. Put simply: if you can’t max out right now, don’t let that stop you from saving what you can, when you can.

You may find that once you get in motion, you’ll stay in motion. All it takes is those first few steps.