Lying to yourself—it sounds so harsh when you put it that way. The more gentle way to frame the question is: “Do you tell yourself reassuring things, things that probably aren’t entirely true, so that you can live with the financial decisions and compromises you’re making?” That’s a little less blunt, but, when you think about it, no less unsettling.Izhar Cohen for WSJ.com
However you describe your rationalization process, Barry Ritholtz, the tireless market forecaster and researcher who writes the insightful blog The Big Picture, is calling today for a “reality check.” He’s publishing a shortlist of the lies that he thinks investors (amateur and professional, presumably) most commonly tell themselves, which includes lies he’s telling himself. “We’re saving enough for retirement” makes his top 5, but the list includes plenty of other rationalizations that relate to our nest eggs. (See: “We have the discipline to follow our plan, and not get distracted,” and my favorite, “We can predict the future.”) Rationalizations like these are “part of our nature, we cannot help ourselves,” Ritholtz writes. He refers to that ultimate baby boomer cultural touchstone, The Big Chill, to illustrate the point.
Am I lying to myself about my savings? Well…not exactly. I make sure I save enough to get my company’s full 401(k) match, and I pat myself on the back for that; I save a little more here and there outside my plan. But in practice, that all gets me to savings of about 9% of my income annually; the financial pros say I ought to be shooting for 10% to 15%. I have lots of convincing (to me) cash-flow reasons why I’m not saving more. I’m not lying, but I’m certainly rationalizing.
How about you, Encore readers? Are you saving enough? And if you aren’t saving at least 10% of your income, why not?