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Overcoming Investor Inertia


Inertia can hold you back, especially when it comes to your investments.

Last year, we covered the concept of

investor inertia

and how dangerous it can be to many portfolios. You can see the full column here, but the basic idea is that properties at rest tend to stay at rest, while things in motion tend to stay in motion. The relevance to your investing strategy is that doing something is better than doing nothing. Further, doing something—such as saving for retirement—is much more likely to lead to doing additional somethings, which can include securing long-term care insurance, saving for a child’s college education, or making sure your life insurance needs are addressed.

Doing nothing, on the other hand, is likely to lead to doing more nothing. Here, we’ll take a look at a few common excuses the do-nothings use, and a way to overcome each.

The classic:

I’ll start saving more when I earn more.

Why it falls apart:

This reasoning falls apart because it has no specified date or timeframe. It’s so undefined, the period of “earning more” can theoretically be put off until the end of your career. This is in part due to lifestyle creep: the more you earn, the more you’re likely to spend.

The workaround:

The most obvious workaround is to start saving now, but the simple truth is that doing so isn’t an option for all dentists, particularly those who are just embarking on their careers. If you fall into that category, a more useful remedy would be to set a specific income level or date by which you plan to start investing for your future. Then, you’ll need to take baby steps to getting into position to start that investment, such as paying down debt. Most importantly, you’ll need to stick to what you promised yourself.

The fly-by-night-er:

I’ll use any bonuses, side income, or investment income as a reinvestment, which will ensure growth!

Why it falls apart:

Like the classic above, the fly-by-night-er keeps things vague enough that getting started investing is more of an idea than a reality. This type of personality really means well, but often finds that the little bits of “extra” income tend to get siphoned off to pay those little bits of “extra” expenditures fly-by-night-ers always seem to encounter.

The workaround:

Learn and live by the concept of

paying yourself first

. Set specific pieces of your income aside for your investments, regardless of what your expenses are. Then, you can use the “extra” income to more directly pursue the “extra-curricular” activities that invariably arise.

The Denier:

It will all be fine. We’ll figure it out. A savings plan will come together eventually.

Why it falls apart:


The workaround:

During one of my teen year trips to the dentist during a period of sporadic toothbrushing, my enterprising dentist sat me down in front of one of those gum-decay vides that doubles as a horror film. Boy, did it do the trick. You can use the same strategy—on yourself—to get past the “bury your head in the sand” mindset that is the root of all investor inertia. Imagine the worst-case scenario, such as an accident that leaves you unable to practice dentistry, or even your own death if it’s what you need to scare yourself straight. How would your family do financially if you don’t have life insurance? What would a forced early retirement mean for your income over the course of the rest of your life? It may sound silly, but this technique really works, because it makes the consequences of denial very vivid.

That last strategy isn’t pleasant, but sometimes we need to get down and dirty to fight our basest tendencies. Whatever gets you in motion—and hopefully staying in motion—will be worth it.

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