I wrote a piece about the 80/20 rule: how 80% of the people do nothing. I then broke the remaining 20% who do ‘something’ into two sub-groups:
– The 19% who save, pay down debt, etc.
– The 1% who will strive for – and perhaps reach – the top of the financial totem-pole.
And, I believe that the difference between all of these groups boils down to one thing: propensity to take action.
Josh‘s question sums it up quite nicely:
I guess you don’t want to be one of those people who contract “paralysis by analysis”. I’m thinking the key here is to just make a move, even though it may not be most perfect move?
Most people fail because they either take too much action or not enough!
Too much action can be a problem, for example, when you chase the market and switch investments a lot; as the Dalbar study found:
During the greatest bull market of all time from 1984 to December 2002 the study came up with an annualized return of 2.57% [for market timers, who move in/out of investments chasing better returns] compared to 12.22% for those who bought and held an S&P500 index fund.
But, how much did those who took NO action make?
Clearly, taking some action is preferable to none … but, what of Josh’s second point: taking action even if “it may not be most perfect move”?
Life rarely presents us with a Final Choice Option …
…. when we take an action, we are usually free to take another! If you make a mistake, back-out as best you can and try something else.
I think of life in terms of a branching structure: at many stages – every day, hour, minute – we are standing at some sort of fork in the road and we have to take the left branch or the right. Somehow, we find a way to choose one:
a) If it seems to carry us to where we want to go. Fine. We stick with it (at least for a while).
b) If it seems to carry us away from where we want to go, we simply wait for the next branching opportunity and try something different.
For example, if an investment works we (should) stick with it. If not, we can always exit for a (hopefully) small’ish loss and try another … if we don’t the loss might increase and take us to zero (how about Enron?).
Of course, this is where it helps to have an overall destination in mind; it helps us understand what does represent the ‘right direction’ for each of us: sometimes, more than one branch appears to be sensible.
But, if you have a clear idea of your Life’s Purpose, all of a sudden only one of the branches may start to make more sense than another.
This helps to explain: where your Life’s Purpose goes, your finances will eventually and surely follow … either by direct route, or meandering, you will eventually find the road to what you deem to be success.