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?