Key Takeaways
When confronted with too many choices, we often don’t make any.
Know five ways that information overload hinders decision-making and how you can overcome them.
A trusted advisor can be a great accountability partner always acting in your best interests and keeping you on track with your plan during volatile times.
Even with the elections thankfully behind us, many of you have told me you’re still too mentally exhausted to make important decisions. That includes deciding what to do with your money as the political elements change.
Think back to those final weeks of the Presidential election when you were bombarded with campaign ads on your home phone, mobile phone, computer, and TV. Well, that’s how it may seem these days with so many people telling you what to do with your money as we approach year-end.
After doing some (unscientific) research, I estimate the average investor is subjected to several thousand articles, posts, and opinions about personal finance EVERY DAY. Everyone from The Wall Street Journal, Forbes, Bloomberg, CNBC, and The New York Times to popular personal finance sites and social media platforms are telling you what to do (and NOT to do) with your money. One minute it’s the best bull market in history; the next minute the world’s going to collapse. What are you supposed to believe? How do you go about making proper decisions with the time you have to manage your affairs?
It pays to simplify the decision-making process and have an accountability partner to help you stick with your decision, so you don’t keep trying to second guess yourself. More on that in a minute. Meanwhile, I want to spend a little time on the mental toll that screaming headlines and our always-connected digital society can take on us if we’re not careful. Information overload can significantly hinder our decision-making, especially in complex areas like personal finance. Here are some of the primary effects:
Decision Paralysis (aka “Analysis Paralysis”). When overwhelmed with too many choices or conflicting information, people often freeze or delay decisions altogether.
Example: A person trying to choose an investment strategy might struggle to act because they’re inundated with differing opinions on risk, timing, and returns.
Increased Anxiety and Stress. Excessive information can lead to stress, particularly when it’s hard to discern which sources are credible. The worry of “getting it wrong” can become paralyzing.
Example: Constantly reading about market downturns might cause someone to feel anxious about staying invested, even if they’re a long-term investor.
Cognitive Overload Reducing Processing Power. Our brains can only process a finite amount of information at once. When flooded with data, critical reasoning weakens, leading to impulsive or less-rational choices.
Example: If someone is researching retirement planning and dives into too many technical articles, they may find it hard to focus on foundational steps like setting contribution goals.
Preference for Simple, Short-Term Solutions. Overload often leads people to choose the path of least resistance. They may pick simpler, immediate options instead of those with long-term benefits, even if the simpler options are sub-optimal.
Example: In choosing between paying off debt or saving, a person might just keep spending because it feels simpler to do so than analyzing interest rates and budgeting.
Confirmation Bias and Echo Chambers. Information overload often drives people to seek out sources that confirm preexisting beliefs. This selective consumption can reinforce biases, leading to unbalanced decisions.
Example: Someone skeptical of investing may only read cautionary articles about market crashes, which reinforces their decision to stay out of the market entirely.
The field of behavioral finance has studied these cognitive biases for years and one of the most important findings is that people are better decision-makers when they have fewer options to choose from. It reminds me of the famous supermarket jam experiment conducted by Columbia University. One day at a local food market, researchers set up a display table with 24 different types of jams to sample. The next day, at that same food market, they presented shoppers with only six types of jam to choose from. Guess which display table generated more sales? Right! The one with only six choices. Fewer choices, fewer decisions. It wasn’t even close.
Simplifying The Decision Process
One of the smartest things you can do is find a trusted partner who has already done the research and separated fact from fiction through rigorous analysis. You want someone who looks at your complete financial picture– beyond the stock market and your investments. They get to know you personally, and then they apply knowledge and skills to your retirement, tax, and insurance needs. They’re not just trying to time the market based on all the noise that's coming your way. Simplifying Financial Decision-Making
At Novi, we spend a great deal of time getting to know you and what’s most important to you and your family before making any recommendations about what to do with your money. After nearly three decades in this business, I’ve learned one important lesson: No two clients are the same and off-the-shelf cookie-cutter solutions won’t work.
We want you to know what’s most relevant to your personal financial situation and we want you to feel confident that the plan we construct with you is best suited for your unique financial situation. By keeping a laser focus on your plan, you can eliminate extraneous “noise” and irrelevant variables from clouding your decision-making.
To mitigate information overload, it helps to focus on a few credible sources, to create decision-making frameworks, and to seek guidance from trusted advisors who always act in your best interests rather than trying to sell you products and services. Simplifying the decision process enables you to make more consistent, confident, and well-informed choices, especially in areas where complexity can cloud judgment.
Fee-only comprehensive planners, who take an objective and highly personalized approach to keeping your finances in order, can help you make more confident decisions no matter who is in office. Fee-only planners can be invaluable for keeping you on track when the stock market and geopolitical landscape is volatile and when the headlines are screaming duck and cover.
Conclusion
If you or someone close to you has concerns about financial plan or retirement readiness in today’s political or economic landscape, contact us any time to discuss. We’re happy to help.
ROBERT B. DUNN, CFP® is the President and Managing Partner of Novi Wealth
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