Share

Don’t get stuck in analysis paralysis. Start building your dreams today.

After Mandy Wilson* managed to save a bit of money, she was excited to get to work on building an investment portfolio. She figured she would start by doing some research to help her make sound investment decisions.

“After reading article after article, I lost all confidence. At the same time, I didn’t want to give up control and have someone else make decisions for me. So, I did nothing.”

Mandy was suffering from what’s known as “analysis paralysis”. Analysis paralysis can happen when you’re making what feels like a big decision. It’s easy to over-research and over-think every possible angle of the decision to the point where you make no decision at all.

“Instead of building this great portfolio I would watch grow over time, my money sat in a savings account making no interest at all. A couple of times, I even dipped into my savings to buy something I really didn’t need.”

Overwhelmed by too many options

You may fall into a state of analysis paralysis because you’re afraid of making the wrong decision. Maybe you’re plagued with worries about choosing the wrong stock or not timing the market correctly.

In reality, not making any decision is actually the wrong decision. It’s called opportunity cost. Opportunity cost is when you give up the chance to make more money because of waiting. The money you’ve slated for investment just languishes in a savings account that earns little to no interest. Making no decision can lead to you losing out on other opportunities. Or, like Mandy, you may end up spending it bit by bit rather than putting it toward your ultimate goals. It leaves you at risk of not reaching your financial goals.

Overcoming analysis paralysis

Like any worry or anxiety, the best way to overcome analysis paralysis is to understand that it’s happening and make an action plan that doesn’t involve fear as a motivating factor.

Start by knowing your investment style. What is your tolerance for risk? Do you feel comfortable taking on more risk for the potential of a greater return, or would you prefer to play it a bit safer for more moderate returns? If you saw your portfolio go lower for a period of time, would you lose sleep? Do you have time on your side – in other words, is retirement 20 years away or just around the corner? Once you understand how much risk you feel comfortable taking, you’ll know better what to look for in your investments.

Research is important, but limit yourself to a few key articles or tools. Get to know which analysts are well respected. At some point, you’ll notice that reading different sources won’t necessarily provide you with more useable information – just information overload.

Rather than trying to understand, weigh and compare every piece of information available, the best way to protect yourself from risk is to diversify your portfolio. At any particular time, while one sector maybe doing poorly, another may be taking off. The same holds true for investments.

You want to stop striving for perfection. There is no perfect investment. There is no perfect decision. The stock market can be volatile. Life, and stock markets, can be unpredictable. Remember that investing is about long-term gains. 

Show analysis paralysis the door

For Mandy Wilson, the best way to get past analysis paralysis was to start slowly and try a few things out until she got comfortable with investing regularly..

“Through my research, I found out I could open a 30-day trial account with Qtrade. I was able to find helpful articles and tools – like the Portfolio Simulator. It boosted my confidence and took the guesswork out of the equation. Now I feel like I’m on my way to achieving my financial goals.”

 

* Names have been changed to protect the identity of investor.

The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This material is for informational and educational purposes and it is not intended to provide specific advice including, without limitation, investment, financial, tax or similar matters.