Last Sunday, I sat with my family to watch a movie together. With our busy lives, finding quality family time has become difficult, isn’t it? But this time, we made sure to set aside the evening to sit together and enjoy a movie.
But guess what happened? To my surprise, even after 45 minutes of scrolling, we still hadn’t finalized a movie to watch! We wanted something light-hearted with a happy ending. But the sheer number of options on OTT platforms was overwhelming and we felt stuck. Even though we had subscriptions to just three platforms, we couldn’t decide. Frustrated, we eventually gave up on the idea altogether.
This experience reminded me of something I had recently read: a study that explains how having too many choices can actually make it harder to decide. It’s called decision fatigue*. When the number of options exceeds a certain threshold, instead of making a choice, people tend to abandon the decision altogether.
How Decision Fatigue Affects Financial Choices
I see this happen frequently in my professional life of over 20 years as well. There are over 40 mutual fund companies, and each company has a wide range of mutual fund schemes as classified by SEBI. Yes, the number of mutual fund schemes is large, but many of these schemes are thematic, sectoral, or built around certain market trends. Are so many mutual funds really required or not is a separate debate.
I have observed that, with so many mutual fund schemes to choose from – debt, equity, hybrid, index, international, sectoral, first-time investors often feel overwhelmed. They start doubting whether investing in mutual funds is a good idea in the first place. More often than not, this self-doubt holds them back, and they revert to traditional, familiar investment methods.
I have also observed that people are interested in doing their research about mutual funds. In fact, many do try to understand mutual funds by reading articles, watching videos, or even following influencers. But two things stand in their way: time and complexity. The world of mutual funds is vast and navigating it without a guide can be mentally exhausting. This causes confusion and inability to decide (be it correct or wrong) which eventually leads to decision fatigue.
And that’s where the role of a guide—or a guru, as we say in India—becomes so important. Whether it’s earning a PhD or establishing a profitable business or training to be a sports star, the value of right guidance is priceless. Yes, we would surely succeed without guidance and with trial and error, but this success may require huge time and effort.
In financial planning too, DIY route can be extra challenging in today’s times where choices are too many and there is a chance of missing out a crucial point. DIY always comes with a cost, and I do not suggest taking risks with your hard-earned, tax-paid money. But imagine getting an expert to guide you to make informed investment decisions. The chance of success is much higher when you are guided by knowledge and experience than doing it via DIY route.
How to Avoid Decision Fatigue in Investing?
Following the below process can make your life much easier:
- Identify our Goal – what do you want money for? The purpose of money can be children’s education, or purchase of real estate or purchase an iPhone J, an international vacation or a happy retired life or to launch your own business.
- Define the Timeframe – When do you need this money – After how many years will you be using this accumulated amount?
Technically we call the above process – identifying your goals and separating them into short-term, long-term, and medium-term goals. Once this is done, identify the most suitable investment products for each of these goals. Mutual funds can be broadly categorised as debt funds, hybrid funds, and equity funds.
Continuing with the next and final step
- Choose the Right Type of Mutual Fund – Choose the mutual fund schemes based on your goals and the time horizon to achieve each goal. We have experienced that for short-term goals few of the debt mutual funds work the best, for medium-term goals hybrid funds are best and for long-term equity mutual funds work well. Sticking to the core categories of mutual funds can be a safe strategy.
Simplifying Choices Leads to Better Investment Decisions
The key to overcoming decision fatigue is to eliminate unnecessary choices and focus on what truly matters—your financial goals and a consistent investment strategy. By streamlining the selection process, you can make confident, stress-free investment decisions.
But what if, instead of drowning in choices, we had the right guidance to navigate them? A good advisor can package all these choices for you and help you get a good outcome in the long run.
Just like a well-curated movie recommendation saves us from endless scrolling, expert financial advice can simplify investment decisions. A trusted advisor helps filter the noise, customise options to your goals, risk appetite, and financial situation.
So, whether it’s picking a movie or choosing the right investment, the lesson remains the same. Sometimes, fewer choices along with the right guidance leads to better decisions.
*References:
Shreedhara is the Founder & Director of Ara Financial Services Pvt. Ltd. He has an experience of over 2 decades in Financial Service Industry with majority of it in guiding individuals and institutions on their investments requirements.
