POSTED BY September 2, 2009 COMMENTS (10)ON
“Secret of Happiness is low expectations” In this article we will discuss why it is so hard for us to make financial decisions and what factors play role in delaying our decisions?
When we have to make a decision, there are lot of choices offered to us, which makes our life difficult and hence it results in delayed decision. We will see how can we change our thinking and help ourselves to make our decision making a smoother and better process.
We will also have a look at some examples which will make reading this article better for you.
The top most reason why we are unable to answer decision making questions is having Lots of Choices. As per Barry Schwartz in his excellent talk
When we want to choose a particular product from a group of products, it’s hard to decide because of more choices that we are exposed to. More choices means more data to process and more data to process means less chances of finding the best product that is suitable for our needs.
As per Decision Theory: We want to make the best and accurate decision given a lot of choices, because we don’t want to be guilty later when we find that we missed out on the best choice. This is called “Opportunity Cost”. We don’t want to blame ourselves for not picking up the best choice. We often try to avoid that regret which can arise later because of the outcome.
The point to note here is that many a times, just because of the comparison we make, the satisfaction level goes down even though the results are good. Haven’t you felt bad when you saw giving 15% return and others gave an average of 23-24%. But you didn’t ever appreciate the fact that 15% in a year is a good return and you should be happy about it.
Next time while choosing the fund to invest in, you make sure that you buy something which is among the top performers. Watch this Video on how to choose a good mutual fund
One of the example is my close friend Chetan Chouhan from Pune. I advised him Sundaram Tax and SBI magnum Tax saver as tax saver funds in early May 2009 he shouted on me after seeing my post on Best Mutual Funds for year 2009, because of the “Opportunity Cost”.
He wanted the “best” fund and now compares the list with what he has currently. He should appreciate that what he has is a good fund and can fulfill his requirement… One should try to get the best fund and maximize his returns but if you give your mind and soul for it .. its just not worth it.
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Now with so many choices and lucrative offers, it’s too hard for us to choose the best one. Even in my list of Best Equity Funds, you will find it very difficult to choose 1 or 2 funds to invest in. But I gave you just 2 funds and asked you to choose 1 fund. It would be so easy for you because less the choices higher the chances that your choice will be a good one.
Just Imagine a world where there were 2 Term Insurance products, 3 ULIPS, 5 type of Mutual funds and 3 Banks providing Home Loans. What a wonderful world it would have been! I am sure everybody would have a desire of that kind of Environment.
Then we will have very less information to process and there will be less changes of Regret and high chances of Satisfaction.
There are so many websites, newspapers, blogs out there giving reviews, recommendations about products that a common person’s mindset is now totally confused because of all this. In case you really think you want take your decisions, you should consider Hiring a financial planner?
At the time of writing this post at 1:30 in morning… Here are the poll results with 97 votes which I conducted over last 3-4 days and here are the results. 72% people think that “Having lot of Choices in Mutual funds and Insurance Policies does not make “decision making” easier?
In case you are one of the person who voted for YES or NO please leave your comment and let every one know what was the reason for your Vote.
How to made a decision making process an easy process? It can be to some extent solved using these ideas.
By this I mean that we are here for achieving our financial goals comfortably, without compromising our family future and smoothly without much tension. That’s the real goal of Financial planning. Once your mindset is set like this, you will automatically not run behind the “best” funds.
What you will try to do is to find out a good product which suits you, just stick to it.
Choosing the best product is not an easy task and not worth too. The easy thing would be to filter out the bad products which is easy to do! So in mutual funds you already get rankings and lists of top 10 or top 5 funds or Best policies from ULIPs or good Home loan from a Bank.
I would say they are worth a look and finally you should decide soon enough on one of them but for this you must have shifted your focus from choosing “best” product to “a suitable” product. People who want to Buy good mutual funds for long term can Choose any one of mutual funds listed in my article on Best Equity funds for year 2009.
There are more Important things than Best timing and Best product which you have to concentrate on. One of them is Consistency in your Investing and your Plan, your Asset allocation, your Diversification. Once you concentrate on this and forget all other materialistic things, it would be a more peaceful activity to manage your Finances.
So we can say finally that it was never like this before. Now a days we have too many things to choose for which has made like worse than even. Hundreds of products do exactly same thing but they all claims to be better than another. We have to narrow down our choices and choose any one of them and not try to hunt for that exactly best product for our self.
Readers, please share your experience of being in a situation where you had to think a lot before making a decision or had to delay your decision. What are your suggestions on this problem? Please post comment.
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