It’s a beautiful Sunday morning in Lakewood. Right now it’s 7:33. Shoot, no. It’s 6:33. It’s November 4th and it’s the end (right?) of Daylight Savings Time. Because apparently, if you change your clock it somehow affects the universal laws of planetary physics and we trick the tilt of the earth into providing us with more daylight. Or less daylight now that DST is over? Who knows.
What I do know is that I have never met anyone who thinks that DST is a good idea. I know that generally every study ever done says that DST is bad for our health and our kids. It’s probably bad for the economy. No one woke up today and thought “Oh, goody. My kids have been up since 5am and tomorrow when I get off work it will be pitch black before I’ve even walked out the door!” People will miss appointments and get schedules crossed and it’s all just a big dumb mess.
The real miracle here is the power of the status quo bias. We did Daylight Savings Time last year, so we’re gonna do it next year. Deal with it. The necessary forces to kill off this dumb idea are nowhere to be found. While ending the madness probably actually only requires a few hours of legislating, you and I both know it’s not going to happen. It is, quite simply, too easy to let things stay as they are. Even if every member of the public thought that DST was a terrible idea and wanted to do away with it, it’s pretty unlikely it would happen. It’s how things are done. Inertia is an incredible force and requires a great deal of energy to overcome.
So it is with an investment portfolio. Take a minute to review your holdings, your asset allocation and asset location. Ask yourself a simple question: if I was starting from scratch, would my portfolio look like this? Does my portfolio more represent a jumbled lifetime of collecting investments, rather than a thoughtfully executed plan? Am I sitting with massive exposure (let’s say >5% of your portfolio) to a stock because I’m emotionally involved or afraid of capital gains? Did I buy this stock with an exit strategy? Did I address concentrated positions in my Investment Policy Statement? Or does it just feel too good to see how much money I’ve made in that stock and I enjoy looking at it too much to trim back the position to a reasonable size?
Many of us can’t be bothered to put in the energy (both mental and emotional) to take a strong look at our existing portfolio and consider if this is how it should really look. If you went to an investment professional with cash, and they recommended that you invest how your portfolio exists in its current state, would you put much faith in that person? If they told you to put 10% of your assets into a single stock, wouldn’t you run in the other direction? If they told you to hold on to 20% of your net worth in cash waiting for them to tell you about next dip, would you (appropriately) think them a charlatan?
Too often the Status Quo Bias leads us (at best) to hold suboptimal portfolios when it comes to asset allocation and location, and (at worst) to hold ridiculously risky portfolios that have a much lower probability of helping us meet our retirement goals than they could otherwise.
Go get a blank sheet of paper and draw out your clean, thoughtful portfolio allocation. How diversified is it? Are you putting tax-unfriendly assets into retirement accounts? Are you keeping positions to a reasonable size?
Now, compare that sheet of paper with your existing portfolio. How far off the mark are you? What changes need to be made to clean things up, bring things back to sanity and reduce unnecessary portfolio risk? Find the energy required to avert the status quo bias and get back to a better state. If we can’t stop the ridiculous behavior of changing our clocks twice a year, we can at least do better here.