Numerous academic studies and books about consumer choices have shown shoppers find it difficult to edit down the selection of everything from toothpaste, to jelly, and to cars. Researchers found that more sales were made when fewer choices were presented. Some companies realized this and gained market share by having fewer options compared to the competitor.
Many people are finding that the investment world offers too many choices leaving them to make bad choices or not investing at all.According to Morningstar, there are 22,689 mutual funds and 1,457 ETFs. How is someone expected to decide which investments to use with their hard earned money? Cutting through all the marketing material, media pundits, and star ratings is a daunting and confusing task. This could be a reason why so few people are financially prepared for retirement.
When you do invest, some negative consequences can pop up from having too many choices. These include excessive trading, constantly changing allocation strategies, higher taxes, overlapping investments, and not enough or too much diversification.
With 401(k) plans, studies have shown that as more mutual funds are offered, fewer people participate. And, participation rates are highest among employers who automatically enroll associates in the company 401(k) rather than giving them the option to enroll.
I like to shop Costco for its selection and value. I like that they carry one or a couple of items in each category. The inventory at a Costco is around 4,000 different products where a typical Wal-Mart has 125,000. We trust that Costco has done the research and is providing the best product in the category and is selling it to us for a fair or discounted price. They have done the editing allowing us to save time, money and frustration.
Working with a Certified Financial Planner can be the Costco to your investments. Our expertise and knowledge allows us to evaluate investment choices, select ones that are appropriate for our clients and manage a financial plan for a low fee. I have helped clients go from 20+ funds down to nine or 10 and at the same time provide more diversification. There are others who had no idea what they owned or that they were paying up to 4% a year in fees. I created transparent investment plans and cut their costs by using low cost index funds.
There are many other areas of personal finance besides investments that a financial planner, like myself, can help simplify such as insurance, estate plans, taxes and retirement. I will do the research, edit the choices, select the ones that are in your best interest and manage it all for a fair fee. This will help you decide to save and be financially prepared now and in the future.
