Guiding consumers since 2009

Spoilt for choice

By 10X - Partner Content

It feels like every second ad we see espouses the virtues of choice. We’ve become conditioned to believe that choice is always a good thing and that the more choice we have, the better it is. This is just not true.

There’s a common sense truth to this argument, though we seldom stop to consider it. The problem with choice is that, after we’ve made one, we think about what we could have had, and wonder if it would have been better.

We could have had the steak instead of the fish, or gone to that restaurant instead of this one. We could have holidayed somewhere else, married someone else, married later or not married at all. Always thinking about what might have been, we’re never really content with what is. It’s endless Fomo (Fear Of Missing Out).

Psychologist, Professor Barry Schwartz, who wrote The Paradox of Choice and whose TED Talk of the same title has had more than 10 million views, explains that what greater choice does is increase our expectations. And with more expectation there’s usually less satisfaction, because it’s harder for the real thing to attain what we hoped it would. If there were just vanilla ice cream, we wouldn’t worry that all the other flavours might taste better, and we wouldn’t be unhappy with vanilla.

You choose, you lose

When it comes to investments, the industry likens different funds to different ice cream flavours, essentially saying there are different strokes for different folks, and that fund A is more suitable to this person, and fund B is better for that one.

At 10X we don’t buy it. We have one, single group of funds that follow one, single strategy. We believe it’s the best strategy, a strategy that works for everyone. We believe this because we’ve tested and back-tested it over more than 100 years – and it’s worked without fail. If we offered a choice, one of those options would have to be a second-best.

Why don’t other investment companies just offer their best strategies or funds? Because they don’t know which one it is. Their best performer one year will not the best performer every year. But they do know that if they have 40 or 50 options, one of those options will probably be near the top each year, and that is all they need to market themselves.

Where does that leave Joe Public? In South Africa there are more than 1,500 unit trust options alone. How do average investors know which one to pick? How do seasoned fund managers know which to pick? It’s dizzying.

This is the other problem with choice, as Prof Schwartz observes. More choice means more complexity. While the ads make us believe that choice gives us freedom, and that it’s liberating, in fact it’s paralysing.

In one study, customers were offered a discount coupon for jam. There were two jam displays. One had only six jams – and 30% of people bought a jar. The other had 24 jams – only 3% bought a jar from the bigger display.

You choose, you lose

In the scheme of things, ice creams and jams are of no great consequence, but investments are, and the same principle applies. Schwartz tells of a company’s voluntary retirement plan that gave employees a choice of 156 different funds. There was a great incentive for employees to choose one of those funds because the company would match their contribution. But choosing from 156 options is mindboggling – so employees just didn’t choose. Schwartz noted that for every additional 10 options offered, 2% fewer people participated. That would mean 30% fewer people participating in this particular organisation, each giving up as much as R65,000 a year in company contributions to their pension.

Even when there’s a really good reason to act – for example, because it affects our retirement – we are paralysed by too much choice. Too much choice makes us feel even more ignorant about already complicated products. We become even more alienated from how they work and what they’re supposed to do. We are even more reliant on “experts” like advisors, who make a very good living off our money. And we engage with our own retirement savings even less.

All of which serves the investment companies very well. But investors, like you and me, not so much.

Recent Articles

Featured Financial conflict can lead to divorce – here’s how to prevent it

Talking about money is an intimate matter, and it may be uncomfortable for couples who’ve managed to avoid this discussion. However, it will become necessary at some point or other. Do you think you’re ready to talk to your partner about money?

This is how much you should spend on accommodation

As your salary changes over time, your expenses will change too. But what if you’re spending an exceedingly large percentage of your income on accommodation? Is it feasible or even recommended in our current stressful financial climate?

How to be “future greedy” with passive income

Setting up numerous streams of income is a safe way to protect yourself from the loss of your main stream of income. Better yet, setting up passive streams of income will ensure you always have money coming in, without costing you additional working hours. So, what is “passive income”, and how can you earn this?

Can your debt be cancelled?

It sometimes happens that you struggle so much to pay your debt that you think of asking your creditor to write it off. But debt doesn’t just get written off. There are conditions that must be met and procedures that must be followed before the creditor cancels your debt.

 

Deals

FNB senior customers can earn up to 30% back in eBucks at Clicks

Price: Available on request
When: From 5 August 2020
Where: Nationwide

Bakwena Spa Women’s Day Special

Price: R549 per person
When: Until 31 August 2020
Where: Centurion, Hartbeespoort, Kuils River

Dis-Chem Pap Test Special

Price: R180
When: From 3 August to 11 September 2020
Where: Nationwide


Latest Guide

Guide to debt rehabilitation solutions