In Pirkei Avot (1:14), Hillel says, “If I am not for me, who will be for me? And when I am for myself alone, what am I? And if not now, then when?”
The final line is one that I think about often. The logical meaning of the verse is if a person puts off his responsibilities, when will he find time to carry them out. As we say in English, “now is as good a time as ever.”
Around the holiday of Shavuos, with its special custom of staying up all night learning Torah (and eating cheesecake), I typically take stock of my own Torah learning throughout the year. Upon reflection, I often conclude that I should really take it upon myself to do more. My excuses really boil down to finding the perfect opportunity: when I have more time, I’m less tired, and life is less chaotic. However, there is never a perfect time. I just need to make it happen.
This quest for perfection is the enemy of progress in many facets of life, including personal finance. The below list highlights several areas within the search for perfection that prevent people from pulling the trigger on a financial strategy. Investors should be aware of these traps to prevent them from inhibiting their ability to achieve their financial objectives
Waiting for the optimal time to invest: A prospective investor called me earlier this year and confessed that she really needs to start investing since most of her wealth, outside of her business, is sitting in cash. After inquiring as to how much cash was sitting on the sidelines, she told me about seven years’ worth of expense money. Yes, seven years! She said, “I’m just not comfortable with what’s happening in the market. I’m waiting for things to settle down.”
While keeping that level of cash on hand is an extreme example, it is common for people to want to wait for an ideal time to put their money to work. In truth, there is never a perfect time to invest. There will always be some type of turmoil in the world that gets people nervous: war, geopolitical risks, market gyrations, increasingly high stock valuations, a global pandemic and more. Trying to time the market for the best entry point could just lead to years of waiting.
Searching for the perfect investment: Every investment carries risk. Sometimes investments work out, and sometimes they don’t. The purpose of taking risk is to generate a return on one’s money. Investors who spend an inordinate amount of time searching for a perfect investment opportunity, namely one that provides high returns with no risk, are on a fruitless pursuit. It’s far better to spend time developing a strategy that provides a high probability of achieving an investor’s financial objectives. This is done by clearly defining the investor’s goals and risk profile, then outlining overall asset allocation and a sensible plan to get them there.
Insisting on getting the best price: After agreeing to an investment strategy, sometimes investors are hesitant to implement it. They will often say, “I like what we discussed, but let’s keep an eye on the investments you’ve mentioned. When the market drops below a certain price then give me a call and we can discuss moving forward.”
The past couple of years, in particular, were ripe for this type of conversation. Many investors understood that adding money into the stock market after it dropped more than 20% in 2022 was a good idea since the market was trading well below its highs. However, taking the plunge and actually adding the money to the market proved difficult for many. It’s human nature to want the best deal. However, waiting for a stock to trade at some arbitrary price often leaves the investor waiting indefinitely. If you have a prudent strategy in place, then waiting for the market to trade at certain levels is ill-advised. Moving forward immediately with your strategy is generally the right decision.
Wanting to create the perfect portfolio: There’s an infinite amount of literature on portfolio construction. Two investors with the same risk profile, goals, and time horizon may have different portfolios suggested to them by various investment firms. All those portfolios may be reasonable. In fact, the more one reads, learns, and researches, the more one concludes that there is no one correct way to invest in the market. There are only wrong ways. It is irresponsible to develop an over-concentration in any given stocks, sectors, or industries. Furthermore, allocating one’s capital exclusively to illiquid investment vehicles or esoteric and unregulated opportunities is also not recommended for most investors.
A far better approach to portfolio construction is to embrace diversification, liquidity, and plain vanilla investments. This philosophy won’t protect the investor against all risks; no investment strategy can do that. However, simply doing what is prudent (and often boring) is usually extremely effective.
Putting off saving until attaining an ideal career situation: When young professionals approach me, I always encourage them to save as much money as possible into their company’s corporate retirement plan. A common retort is, “I’m going to hold off on saving for retirement until I get better situated. My cash flow isn’t the greatest, and I anticipate being able to save a lot more when I get promoted.” This is the wrong mindset. When you are young, with fewer responsibilities and financial commitments, is generally the best time to save. Additionally, putting money away while you are early in your career allows those dollars to benefit from compound interest. Decades of letting that money grow can meaningfully benefit your financial future. Thankfully, many corporate retirement plans incorporate “nudges” that help employees seamlessly save more. These “nudges” include automatic enrollment and automatic escalation of the employee’s contributions. Doing nothing and allowing these automations work their magic is often the right decision.
Holding off until you’re in a comfortable life situation: The events in one’s personal life are often another deterrent to getting started. Whether it’s buying a home, going on a special vacation, sickness or death, there are always personal reasons to put your finances on the back burner. Unfortunately, the vicissitudes of life are a constant. Holding off for when your life “normalizes” is a recipe for inaction.
Similar to the “nudges” built into corporate retirement plans, one can also build automations into their personal financial affairs by setting up small amounts of money to go into an investment account at regular intervals. The person probably won’t miss the modest amount of money being siphoned into their investment portfolio, and even a very small dollar amount every month can slowly accumulate wealth. Furthermore, hiring an advisor is a wonderful way to help an investor move in the right direction no matter what hurdles lie in their way.
Refusing to act until you’re in an optimal tax situation: Some sophisticated investors often stall on making decisions because of the tax ramifications. There is no question that taxes are an integral part of any financial plan. However, investors should not become paralyzed because they may need to pay taxes. As I tell these clients, “Don’t let the tax tail wave the investment dog.” This is an example of focusing on the minutiae instead of the big picture. Tax-sensitive folks tend to wait for losses in their portfolio to offset gains before making any changes. Unfortunately, the requisite level of losses may never occur, and continuing to hold undesirable positions as you wait may not be appropriate.
Sensitivity to taxes can also manifest itself in portfolio construction. Certain investments are more tax efficient than others. It’s important for investors to try putting tax-inefficient investments into their tax-free Roth IRAs or tax-deferred accounts, like a traditional IRA. Conversely, they should put tax-efficient investments into their taxable account. This is the concept of understanding proper “asset location.” However, putting various investments into the right account doesn’t always work out due to a client’s goals and risk tolerance. In fact, it can make investing one’s assets extremely cumbersome and difficult to manage. The potential tax savings is not always worth the headache and may cause the investor to get bogged down and lose sight of the big picture.
We can draw parallels from the world of shidduchim, where searching for the perfect mate can be a hopeless endeavor. Every person has flaws, and no relationship comes without its wrinkles. The key is finding a mate who is well suited for you, with all their imperfections, and being willing to work toward your common goals. Embracing this truth can ultimately lead to courtship and a successful marriage. While denying it may lead to years of unintended singlehood.
The same is true for financial planning, Torah learning, or any other worthy endeavor. The simple act of acknowledging that no time is ideal and just getting the ball rolling is typically the biggest hurdle that one must overcome. It’s far better to adjust over time than to do nothing at all. The reality is that procrastinating in search of perfection is a decision, and it’s usually the wrong one.
Wishing all Jewish Press readers a happy, healthy, and inspirational Shavuos!
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