Categories
All posts Personal Finance

Decision Fatigue In Investing

Overthinking investing has often led to diminished returns in my portfolio. Decision fatigue in investing is the result of a complicated investing process. Automating everything in the investing process is probably the best thing I’ve done for my portfolio.

We’re bombarded with investing options as physicians. Your browser algorithm pushes all of those weird investment opportunities right to your screen. Sadly, most investments are meant to make the originator richer, not the investor.

Having to sort through many investment options will eventually lead to decision fatigue. Or, even worse, you’ll just choose the highest-return investment possible.

Physicians are Targets

A lot of doctors have gotten scammed over the years. They fell for a sexy investment opportunity because it was presented elegantly.

Or they become early adopters of a risky investment. Risk can be good but not all risk is rewarded by the markets. Think back to all the hours doctors spent day trading in the early 2000’s.

There will always be new investment ideas. Often times old investments will be spun to create a new investment. In the end, it’s all stocks, bonds, and real estate.

Beating the Competition

There is always another person on the other side of the trade. Which means, if you genuinely don’t desire for your physician colleagues to do worse than you then you don’t understand the investing game.

Buying a stock means that someone else sold it to you. You bought it from someone who believe that that particular stock wasn’t worth holding any longer.

There is nothing wrong with you wanting to beat the market. There is nothing wrong with you wanting to see double-digit returns while your colleagues are eeking by on 4.5% annual returns.

This is the theory of a zero-sum game.

Physician Financial Success

As medical professionals we do well financially because of our high salaries. Ignoring this massive advantage can lead to chasing down the wrong returns.

In fact, spending too much chasing returns distracts you from living the juicy parts of life. It can get overwhelming, confusing, and lead to decision fatigue in investing.

If we had a ton of money to invest we could take less risk. With $100m to invest, even at 1.5% return, that’s a $1m annual income. Who cares about the rate of return when you can roll heavy die like that. But settling for higher risk in hopes of higher returns, that, my friend, the markets rarely reward.

We have enough decisions to make in our careers. Trying to filter through each and every new investment opportunity will just exhaust us and distract us. I need to be investing in something steady and safe. Especially if I have a long investment horizon.

Looking at Rate of Returns

Syndicated real estate investments tout double digit returns and the chance to own real estate.

Even if these investments prove to be amazing investing opportunities in the long-run, none of us could have known that. Taking the risk on these investments may go unrewarded.

Just the same, you can find stocks and bonds which have posted double digit returns over several years. But if you go off of that alone you’ll likely lose a lot of money over your investing career.

Fear of Leaving Money on the Table

Back when I was moonlighting, when a shift came up for grabs and I passed on it I felt as though I was leaving money on the table. Silly.

I didn’t value what I could do with my free time back then. I also didn’t realize that no matter how much you do, there is always money left on the table. Nobody can earn all the money that’s out there to be earned.

Hopefully this is a liberating enough feeling. Knowing that it is okay to pass on certain investments. And just because a certain opportunity ends up being a success in the future, we had and have no way of knowing that.

Keeping it Simple

Your investing strategy could be nothing more than investing in government bonds. Or it could be investing in passive stock index funds. Maybe you only want a real estate portfolio.

To me, these are all ways of keeping it simple and avoiding investing decision fatigue. They are proven investing strategies and they have a lot of data backing them up.

In fact, the reason for their poor returns is that everyone knows about them and everyone invests in them.

There will always be another syndicated deal around the corner. There will always be another peer-to-peer lending investment option. And there will be scores of bitcoin-ish options for us to sink our dollars in to.

To me, all of this is noise. Yes, I want to invest in order to grow my money. But I don’t want to vet every single investment option which comes along. I don’t have the bandwidth nor headspace for that.

Alternative Investing Options for Doctors

There are a few alternative investing options which are unique to physicians. That’s the edge you can get in these investments. It’s the insider information and the fact that only few investors are able to get into these deals.

A great example is when a house goes for sale in your neighborhood. You might be the only household who can afford buying it. And you’re likely among the few who knows that neighborhood well enough to know whether it’s a good investment or not.

The same is true about a medical practice. A nurse can’t own a clinic, nor can the rich entrepreneur next door. In most states only physicians can own a medical practice. And a medical practice, depending on the type, can have a future resale value.

Decision Fatigue in Investing

When you have to constantly change in and out of your investments or evaluate the newest things on the market, it can lead to exhaustion. This is a good definition of decision fatigue. You likely aren’t rewarded well enough for these numerous decisions which leads to frustration.

We have a lot of decisions to make as doctors but we are rewarded with the right diagnosis and often patients who appreciate our care. But even in medicine it’s believe that doctors are burning out because of all of the decisions they have to make on a daily basis.

It’s totally possible to only pick 2 or 3 investment options and rebalance between them – nothing more. It will earn us enough returns and require little upkeep. Our money will grow and we can focus the rest of our attention on more important things in life.

Consequence of Decision Fatigue

I have definitely felt frustration back in the day when I was trying to build complicated portfolios. I assumed that tilting my portfolio towards small-cap and some value stocks was going to make a major difference. And that I needed more REIT’s and maybe some energy ETF’s.

Sure, these could bump my returns up but what about all the work that goes into it? I have to rebalance the portfolio, determine my asset allocation, and then keep worrying about what else more I could have done. It never ends.

When you make so many decisions, yes, that leads to decision fatigue and the consequence is that you focus less on the portfolio return drivers. The fund selection and investor actions which offer 90% of the returns take a backseat.

Instead of adding more to your index funds or buying more real estate, you’re spending your money and time learning about blockchain technology.

Financial Independence

Reaching financial independence has proven invaluable. It’s allowed me to live the kind of life which I thought I could only enjoy in my 60’s.

I’m 41 and I retired at the age of 38. My investment portfolio grew aggressively because I kept dumping money into it and because of compounding returns.

During the wealth accumulation phase, it’s important to focus on working, saving, and investing. That’s it. Making the investing decision as easy as possible will get rid of any hurdles.

It’s better to keep investing in something with a high success rate than jumping in and out of the newest investment opportunity. Well, that is, unless you’re a professional investor.

2 replies on “Decision Fatigue In Investing”

I like the part age 41 and retired at 38, investment gave big return. I’m curious about that investment , dont know really how I can get into that

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

× How can I help you?