According to PBS, we make about 35,000 daily decisions, such as where to eat or what to wear. Greg Groeschel of the Leadership Podcast says, "Indecision is a decision." Harvard has shared insights on crafting effective decisions, highlighting eight key elements. Among these, they emphasize the importance of timeliness, transparent communication with stakeholders, and a comprehensive consideration of holistic challenges.
Investors face a multitude of investment decisions regarding their portfolios and financial goals. In addition to making decisions, they must deal with the emotional toll of the market's volatility. As markets rise, investors battle the fear of mission out, or FOMO, especially if they hold a significant cash position waiting for stocks to fall. When markets fall, investors let fear and procrastination rule. Moreover, determining what to purchase and when can result in indecision—a decision in its own right.
People ask me what stock to buy or what looks good now – a hot tip. I have no idea. If I had recommended Nvidia in 2022, they would have lost 55% if they followed my advice. However, If I made the same recommendation last year, they would have made 238%. Investors want an easy answer to a difficult question, bypassing all decision-making.
Nevertheless, there may be an easy answer to the investment decision process in the index fund. An index fund eliminates numerous decisions about what to own, and if we include a financial plan, it further reduces the decision-making process. A financial plan removes the need for market timing because the focus is on your short and long-term goals regardless of market conditions. In fact, trying to time the market can destroy your financial future.
An index fund owns hundreds, if not thousands, of individual investments, so you don't have to decide which stock or bond to purchase. You can diversify your holdings globally with a handful of index funds, and a globally diversified portfolio gives you access to the best publicly traded investments.
My recommendation is to make two decisions. The first is to develop your financial plan, and the second is to buy index funds.
When your values are clear to you, making decisions becomes easier. ~ Roy E. Disney
February 2, 2024
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level.
Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren't suitable for every investor. Prices and yields are for today only and are subject to change without notice. Past performance is not a guarantee of future performance.
 https://hbr.org/2022/03/how-to-make-great-decisions-quickly, Martin G. Moore, March 22, 2022.