Choice?

Is too much choice simply too much for some people to handle these days?

Interestingly, the more choice we have, the more disappointed we subsequently become. This is actually contrary to most people’s belief that the more choice, the better. Let’s take for example a simple trip to the ice cream shop – there are so many flavours to choose from now. Inevitably you choose something and take the first bite and then wish you had chosen the other flavour. The same applies at the restaurant, and how about choosing the colours to paint your house. How many shades of white are there for goodness sake?

So despite the fact that economic theory suggests that we are rational economic agents who know their own business best, perhaps this is simply not true when investing. This is why the government is implementing MySuper, a low cost and no frills solution for those of you who show high levels of apathy towards their superannuation and retirement.

Guess what, in my experience this is absolutely correct. To this stage I have not been convinced that the majority of Australians would not be advantaged by investing into a MySuper option. The reason for this is that most investors overestimate their ability to choose good investments. Furthermore, they are also prone to making investment decisions based on past performance rather than an intellectual framework. Finally, they also get caught up in the fear and greed cycle resulting in taking less risk when things are bad and taking more risk when things are good which is unfortunately the incorrect course of action (Warren Buffet states "Be fearful when people are greedy, be greedy when people are fearful").

The Dalbar study supports this. In the 20 years to the end of 31 December 2009, the S & P 500 index in the USA averaged 8.2% per annum wherea’s the average investor achieved a return of just only 3.17% over the same time period.

Someone who wants to really make a difference to their long term goals should consider paying for some advice but I must warn you...achieving your long term goals rarely has much to do with picking the right investments - it is more about understanding the key financial levers that affects your long term outcomes including income, expenses and asset allocation.

If you think that by chopping and changing your investments and trying to pick the next winner is your path to financial prosperity, I say good luck!!!!

Julian McLaren is a Representative of the Shadforth Financial Group (AFS Licence No. 318613) Julian may be contacted on 69317488. This is general advice and readers should seek their own professional advice in regards to their individual circumstances