I’ve been held hostage in my own house for the past four days…
My family and I have been trapped inside by the monster blizzard that dumped over two feet of snow upon us. Now I love the snow: it is gorgeous outside, my kids are having a blast playing in it, and there’s something rather comforting about being forced to relax for a couple days.
Thankfully we all knew it was coming, so I made sure we were prepared. I chopped an abundant supply of firewood. I loaded up on groceries days before the stores were crowded and the shelves were barren. And of course I picked up enough booze to kill an elephant…
It was a good thing I did, because after three straight days of watching children’s movies and building forts, I really started to relate to Jack Nicholson in The Shining.
A cocktail or two went a long way in quelling the cabin fever — and thankfully no family members were murdered in the writing of this editorial.
But while we were prepared for life indoors, my wife and I did make one crucial mistake once the snow really started coming down…
We hemmed and hawed about where to start shoveling first.
Now, we knew damn well that we’d need to shovel out our cars. I also knew that I’d need to shovel snow off of our roof so it wouldn’t collapse. It would also be a wise move to remove the snow from around the sides of the house so it didn’t eventually start melting into the basement…
So what did I do?
I froze up…
I was so consumed in my thought process that I didn’t do anything. We just waited inside and watched the blizzard cover the roads, roofs, and cars for two entire days. Once I finally began shoveling, the snow was so high and heavy that the job took me far longer — and left my back and limbs burning.
Had I simply started plowing away the snow immediately in a few shifts, the work would have been far easier, and way less painful.
That is the definition of analysis paralysis.
Here’s how the experts explain it:
Analysis paralysis is an anti-pattern, the state of over-analyzing (or over-thinking) a situation so that a decision or action is never taken, in effect paralyzing the outcome. A decision can be treated as over-complicated, with too many detailed options, so that a choice is never made, rather than try something and change if a major problem arises.
A person might be seeking the optimal or “perfect” solution upfront, and fear making any decision which could lead to erroneous results, while on the way to a better solution.
Thus goes Wayne Gretzky’s old sports axiom that “You miss 100% of shots you don’t take.”
This is a crucial issue for investors as well — and I can’t blame them: it’s easy to get overwhelmed with all of the choices out there.
Which stocks should I buy? Which stocks should I sell? How much should I contribute to my retirement account? Should I have invested in low-cost index funds instead of mutual funds? How much money should I have in gold and silver? How much cash should I keep in my savings account?
I could go on and on…
I was just talking to a friend who had literally no clue what to do with his money. He was terrified of stocks, had never heard of exchange traded funds, and didn’t have an IRA or 401(k) account to even begin saving for retirement.
What did he have?
Around $30,000 sitting in his bank account, rotting away at less than 1% interest.
“I just don’t know where to start!” he pleaded.
I told him he best start somewhere, and fast. Anything is better — long term — than doing nothing at all.
Unless you are planning on retiring in the next few years, there is no real reason to be stuck in analysis paralysis. You need to have your money working for you as soon as possible.
Now, it’s not a bad idea to have cash available for bills and emergencies (most experts agree you should have at least 6-9 months of your salary saved).
But where does one start?
At the very least, my friend should have taken a chunk of that $30,000 and spread it out among a couple of quality dividend stocks that yield 20 times what you’d get from a savings account.
If he was thinking long term, he could have started a simple $50 Retirement Plan that would have compounded his dividends and likely doubled his money in 10 years.
Most simply, he should have at least held a basic market ETF like the Vanguard 500 (NYSE:VOO) that would have returned him almost 50% over the past five years.
Or he could have purchased some physical gold or silver at seriously depressed rates and just held them until prices went back up.
I also told him if he has that much capital to deploy, he’d be crazy not to take a chance on what I believe will be the biggest investing opportunity of the next decade: the end of prohibition of marijuana.
All of these are easy, smart financial decisions that will pay off in the long run.
As my back aches and my limbs throb as I write this, I wish I had taken my own advice and got out in front of my problems before they piled up.
