Status Quo Bias

The inability to take action is one cognitive issue investors face. This “everything is alright” mentality defers our attention away from our investing and we focus on more interesting things (Netflix, shopping, etc.).

Understanding that we are neglecting our future selves will help us focus on making correct steps today to improve in the future. Without any action, we are blindly moving ahead with no real idea on how best to achieve our long-term goals. Ignoring the status quo bias will help us create the building blocks for an improved future.

Think about it like preventative medicine. If you are taking steps each and every year to ensure your health is in order, the likelihood of a major health issue can be greatly reduced. If you are regularly testing your blood, eating well, and exercising, there is a good chance your doctor will see and adjust your behavior to prevent any major health issues.

But if you spend no time monitoring your health and checking in on yourself, what is it going to take to get your full attention to making sure you are in fact healthy? How do you actually know if your healthy and not at risk of some disease?

Source: Giphy

The same is true in personal finance and our investing habits. America is struggling in the category of financial literacy and it really requires creating good habits to get us on track. How we manage our credit card and student loan debt, begin saving for the future, and choose our investments all to have a major impact on our future.

If we look at the current state of retirement in American, we can see the evidence:

Your goal as an investor and future retiree is to make sure you are taking the right steps towards bettering your future. You can’t rely on others to cover your living expenses in retirement but sadly 63% of rich kid’s expect to retire off an inheritance.

The last thing you want to do is sit around and wait for the financial equivalent of a heart attack to start planning. Instead, begin taking small steps to organize your debt, your savings, and your retirement. Don’t become a statistic from the EPI survey I referenced above. Start by ignoring the “status quo bias” and instead take some action.

Here are some helpful tips to take some action:

Aggregate your finances. I use to organize my savings, investments, and debts to make sure I can monitor my entire net worth each month. Having everything visible in a single spot can help you keep up with all areas of your net worth.

Learn about your finances. There are a ton of free websites to get good content about investing, savings, debt management, etc. I really like Khan Academy for understanding general personal finance. Also, most investment shops provide quality free tools and resources.

Setup a review schedule. This is probably one of the main reasons to hire a financial advisor. If you have no plan to monitor and review your investments, delegate the responsibility to someone else. Everyone has a smartphone with a calendar nowadays, so set up a recurring reminder shouldn’t be difficult.

Don’t think you suffer from the Status Quo Bias? Try to quickly answer the following questions:

  1. What funds (exactly) is your 401k invested in?
  2. What company handles your 401k?
  3. When was the last time you ran a budget?
  4. How much (exactly) are you saving each month?
  5. How much do your investments cost? (Nothing is free, not even index funds)

These are pretty simple questions but if you hesitate to answer them, you probably haven’t spent enough time looking into them.

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