Fear of Investing: Perfectionism

I’m that kid who had ALL of her money in savings accounts and CDs until she opened her 401(k) and those weren’t options there. Yeah. (And we all know how well that started out.)

For whatever reason, buying stocks and such in my tax-advantaged accounts isn’t nearly as scary as it is in taxable accounts. If I change my mind on something or do the wrong thing, I have to pay taxes on any gains. (My brain seems to forget that paying taxes on gains is better than having no gains at all…) There are also so many more moving pieces investing in multiple accounts at the same time. And I’m totally way overthinking it, which isn’t helping at all.

I’m not even sure it’s a fear of losing money like many people have since I have pretty good cash flow and about 7 months’ expenses in a straight savings account. It’s probably a fear of the unknown and not doing the perfect thing.

My personality is such that it is easier for me to do one thing at a time until that thing is done and then do another thing. Remember my savings snowball? I don’t do well with putting $X/month away for a Roth IRA. I prefer putting $5,500 into it all at once. I don’t like adding little bits to the mortgage at a time – it’s easier to pay the minimum or a ton extra. I don’t like splitting my bonuses up to multiple savings vehicles – I prefer throwing it all at one.

That’s a bit why I’ve just been throwing everything at the mortgage so far since I closed on my condo last June.

I’m not very good at wishy washy things that don’t need to be exact. Asset allocation is a guideline of risk, not a specific science. People who are perfectionist investors are probably not as good as more vague investors as we want to keep everything exactly right, which involves more buying and selling. That’s why my rule is to only re-balance with new money. It results in a lot less fidgeting.

Right now, my asset allocation is at 29% fixed income and 71% stocks, which is a bit overweighted in fixed income from buying the $10,000 in Series I Savings Bonds. When I make my 2013 Roth IRA contribution later this month, it’ll shift to 27% fixed income and 73% stocks, which is much closer to my target.

I spent a few hours on Friday night playing with forecasting spreadsheets and getting really anxious about which decision to make, about which funds to use in which accounts. I eventually came to a strong moment of indecision and decided I should go to sleep. In the morning, I had this strange peaceful rush which helped me to remember that these little decisions, no matter how much I want them to matter, don’t actually matter all that much. They’re incredibly minuscule compared to my savings rate. So far this year, I have added over $21,000 to my investment portfolio. And that’s only four months in. Choosing between putting Vanguard Total (US) Stock Market index fund or Vanguard Total International Stock index fund in taxable is not worth nearly as much as continuing to stash the amount of money that I do – I will add at least another $18,000 to my investment portfolio this year, possibly another $38,000.

So the key is to be tax-efficient, but not let perfect be the enemy of good. We’re are own worst enemies really at doing that.

Readers, what tips and tricks do you have for getting past your perfectionist tendencies?

27 thoughts on “Fear of Investing: Perfectionism

  1. I don’t have any tricks and I reason that’s probably why I let perfection get the best of me. Lately, the big question is whether the stock market will keep rising at its all time high or are we in for a ride? With the experiences we’ve had in the last five years I feel scared about moving what to where and when.

    • I keep wondering that too. I wasn’t investing during the last downturn, so I have no idea what I would do when that happens again. That’s a bit scary to think about.

  2. I know if my wife tried to invest she’d agonize over every detail of where to invest to get it perfectly right, just for the markets open the next day and throw those plans out the window. I think it’s a great idea for anyone, especially those perfectionists, to only rebalance with new money like you’re doing.

    Great job on keeping up the high savings rate. It really is the biggest factor in determining how quickly you can reach financial independence.

    • When I was using ETFs, I’d analyze every detail of exactly what I was going to do and then have to adjust it once the markets opened. It was a huge pain. Index funds are way easier to be passive since I throw a $ amount into them and sometimes automatically.

      Thanks! I love watching how raises/more RSUs granted bring my FI date in by years still :)

  3. Id certainly do my assey allocation a bit differently if I could start over, but I think its all part of learning. I’ve recently changed my allocation a little. Being super tax efficient is important, but you said it, your savings rate is about 50x more important.

    • Hehe yep, I saw that when I opened my Google Reader this morning!

      I loved your post on satisficing – I’ve definitely been keeping that in mind with a lot of things. It’s great for dealing with cleaning to a certain extent ;) Though I’ve learned that I really care most about tidying, dust bunnies, and clean clothes.

  4. I also have a much harder time with investments in our taxable account. I always remind that one of the first chapters in the Bogleheads Guide to Investing is about how much you save as it is the cornerstone to building wealth. So I try to remember that you can’t time the market and put as much into our diversified vanguard portfolio as we can.

    • It amazes me that most of my guy friends (who are in their twenties) buy individual stocks. I think I only know one guy in his twenties that I know anything about his investing strategy who buys index funds or ETFs. I’m so glad that I read the part of the internet where it says to not time the market – I would be constantly stressed out if I was trying to time the market.

      • Greg O’Dean has a couple of papers on how men are more likely to do single stocks and trade too much compared to women, who tend to trade less and do mutual funds and index funds. (This was before target-date funds became so wide-spread.) And women make more money (or rather, they lose less money)!

        • Yep, I love this! I know people who check up on their stocks every morning. I probably would too, which is why index funds are good for me :)

        • When you have index funds, you can just check CNN and it’ll tell you how the market is doing. :)

          I also like the way Mint has been telling me how much I make each week, which has been a LOT in the rally. Probably I would not like it to tell me how much I will be losing in the next downturn.

        • True! That would require too much math to figure out how my portfolio is actually doing though since CNN doesn’t really report on “international market as a whole” :P

          I didn’t like Mint having my investments because it tied looking at my spending too much to how my investments were doing. It also told me at a super fine grained level how they were doing… My personal software tells me how my total group of investments is doing when I check in on it, but I only do that once every week or two. My investments have actually been seeing more by market gains lately than how much I put into them, which is pretty cool (and scary at the same time).

        • I don’t want to marry a guy who buys single stocks…it’s completely speculative gambling. Well, the stock market is as well, but at least there’s a pretty good chance an entire index won’t go down to zero.

  5. I have a portion of each paycheck deposited into a few vanguard funds in a taxable account. Vanguard has a direct deposit option that lets you set the percent. This removes any nervousness I might feel as the purchases just take place automatically. I highly recommend automating your investments if you are investing in index funds. I just added VSS to my allocation which is a Vanguard ETF (due to no admiral, and high fees on the fund version). You cannot automatically invest into ETFs and it does create a minor amount of stress for me worrying about buying the etf at too high of a premium when I buy it each paycheck. In contrast, I don’t think about my vanguard fund investments as they occur, and feel zero stress about them.

    • That’s pretty much my plan! Except that I think I’ll only have one fund (Total International) in taxable at first. Thanks for sharing the perspective of someone who already has my plan in place! :)

      Vanguard is always adding new Admiral shares funds, so if it were me, I would probably just go with the Investor shares version and hope for conversion in a year or two. You can’t convert from ETF to mutual fund, but you can convert from mutual fund to ETF. (Never mind, I see the fees, holy crap fees!! I can’t believe it has a purchase fee!)

      What do you do about dividends? I’ve almost debated no longer investing them manually and manually investing my paycheck that month to create fewer tax lots, but that almost seems like too much work and thus a terrible idea…

      • I reinvest dividends automatically. Having more tax lots is actually beneficial for tax lot harvesting purposes and starting ?last year, brokers were required to keep track of tax lots, which gets rid of the record keeping burden. Just make sure to select specific id as your cost basis method in account profile.

  6. I am kind’ve an “all or nothing” person as well. I’m also an OCD perfectionist. It’s hard to get past that. Luckily, my husband is more balanced than me and tends to pick up the slack in areas where I fail miserably. Most of our investments are automatic because of him.

    • It is so hard to get past that! I’m seriously debating just throwing my whole bonus in my savings account and dealing with it later, even though I have a plan! Thankfully I have direct deposit splitting set up on my paycheck so that one will go along just fine. Somehow, the bonus seems more real if I throw the entire amount at one thing rather than splitting it up, oops.

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