Analysis Paralysis: Why Overthinking Is Costing You More Than You Think
Have you ever been in a situation with seemingly unlimited options? Options so plentiful you left without choosing one. Maybe you have researched dozens of different options, and naturally they all have pros and cons. With the ease of research and the plethora of opinions online, this isn’t uncommon.
Analysis paralysis occurs when you overanalyze or overthink options leading to the inability to make decisions within a natural time frame. This could manifest as indecision, prolonged hesitation, or second guessing after selecting.
Analysis paralysis can be found in major life decisions such as job selection. And everyday choices such as choosing cereal. Decisions having a major impact on life are at a great risk of analysis paralysis. This includes decisions around personal finance and investing.
Humble Beginnings
When I began self-managing my investments during CRNA school, I was overwhelmed with analysis paralysis. Up to this point, my investments included $100,000 in Certificates of Deposits to pay for CRNA school and $2,000 in an investment fund managed by Ameriprise. All of this was liquidated to pay tuition.
Midway CRNA school, I had $10,000 to self-manage. Now that I was in control, there were so many strategies and opinions that I could not decide which way to go.
Psychology of Money
I grew up with a fear of making mistakes. This means I'm not cut out for the entrepreneurial world, a world where failure is the norm. Entrepreneurs take lessons learned and return to the drawing board and start again. Thomas Edison was known for his famous quote, “I have not failed 10,000 times. I have not failed once. I have succeeded improving that those 10,000 ways will not work.”
At the ripe age of 31, I have concluded that failure is important. Failure is inevitable. It's the response to failure that determines the overall outcome.
I have long aborted the pursuit of perfection -- The pursuit of the perfect run. I have accepted that I may have investments decrease in value. Perhaps significantly. The idea of investing in the stock market was a fool’s game compared to the “secure” investment of CDs. That was before I understood risk.
80/20 Strategy
I have since adopted an approach stating that if an intervention is 80% in the desired direction, that's enough to commit. Get the ship moving in the general heading.
My previous analysis paralysis would have required a flawless plan prior to allowing my brain the freedom to commit to a decision. Such a plan does not exist.
Moving that $10,000 into the market was mentally challenging. I slowly invested $1,000 at a time. That’s not the case today.
Consequences of Analysis Paralysis
There is risk in doing and risk in not doing. Analysis paralysis presents the risk of not doing. I currently work as a certified registered nurse anesthetist (CRNA). Had I been struck with analysis paralysis in high school, I may never have attended nursing school. Had I been struck with analysis paralysis as a registered nurse, I may never have attended anesthesia school. Had I been struck with analysis paralysis during my first CRNA job, I may never have started my locum journey.
Analysis paralysis at any time along my career journey would have prevented me from being in the situation I find myself in today. Perhaps for the better, but likely for the worse. I’m in a great spot today through a mix of probability, luck, and a bit of hard work. I can’t complain.
Productivity Loss
I decided to undergo the CRNA path when I was 15-years-old. I didn’t know anything about the career, but I knew it paid well and sounded cool. Better than working as a construction laborer for 40 years.
Career productivity loss would have left me without a mid six-figure income from anesthesia. There are other careers with better compensation, but far more that pay less.
Productivity loss in the personal finance and investing world is what I started The Financial Cocktail to mitigate. I often open my inbox to inquiries such as, “I have been researching investing and reading your blog. It has been helpful, but I just can’t pull the trigger. I can’t commit.” For sure. Really common problem for a few reasons.
ONE, self-management is terrifying. You are now responsible for the outcomes. Humans fear the worst.
TWO, the investment vehicles are numerous. Which investments are optimized in which account? Traditional vs Roth. SEP vs Solo401(k).
THREE, the investment options are endless. Target date fund vs mutual fund vs index fund. What are these fees? When to add single stocks, crypto, precious metals, REITs, and real estate?
FOUR, those working a high opportunity cost profession obtain an income windfall. $50,000 annually as a Registered Nurse and $0 annually as an SRNA. Then $300,000k+ as a new grad CRNA! Big shock to the system. Same windfall goes for physicians, professional athletes, and lottery winners.
These 4 factors lead to mental exhaustion and decision fatigue. You will begin stressing about what you did/didn’t do. What you could/should be doing.
You Already Missed More Than You Know
Amazon’s 1997 IPO at $18 per share. Considering stocks splits and appreciation, each share is worth $54,000 today.
Nvidia’s 1999 IPO was $12 per share. Each share is worth $82,000 today.
Bitcoin’s 2009 offering was 5,050 bitcoins for $5.02 via PayPal. These 5,050 bitcoins would be worth $600M as I write this. Yep, $5 to $600M in 16ish years. Even I had $5 back in 2009 and we all missed the $600M payout.
Analysis paralysis takes a toll on everything. Good news, I fixed my analysis paralysis, and you can do the same.
TFC Principles
Adhere to the TFC principles of personal finance and you will be alright.
Spend less than you earn
Invest 25-50% of your income
Eliminate high-interest debt
80/20 Strategy Applied
The Financial Cocktail is comprised of data-driven strategies that are beneficial most of the time. If an intervention is 80% in the right direction, commit. Figure out the remaining 20% along the way.
Personal finance and investing are games of probability. I recommend low-cost, passively managed index funds such as VTI. Will the stock market (and VTI) continue to grow over the next 5, 10, 30, and 50 years. There is a reasonable change of this happening, therefore, commit.
Invest in a broad market fund assuming the trajectory is generally up and to the right. This may not be the best investment, but data says a broad market fund will outpace inflation consistently on all time frames greater than 5 years. Good enough for me. This makes VTI a great buy-and-hold investment.
My 80/20
I invest every Monday. $5,000 goes into a broad market fund regardless of short-term market trends. I’m reasonably confident VTI, VUG, and the similar will all trend up and to the right over a 30-year investing horizon. Sure, all will perform slightly differently, but all will likely outpace inflation and increase my buying power in the future.
J.L. Collins
Collins writes in his book, The Simple Path to Wealth, about using VTSAX as his ONLY investment. VTSAX is a low-cost, total stock market index fund containing the 3,600 stocks publicly traded on the U.S. stock market.
He recommends VTSAX because it’s a single mutual fund comprised of a small piece of 3,600 companies. No need to pick single stocks and become overwhelmed by options, just buy the market. This is his data-driven approach. VTSAX is his 80.
Embrace Imperfection
VTI and VTSAX are essentially the same. Both are imperfect, but both accomplish the goal of outpacing inflation and increasing buying power heading into retirement. It’s far better to invest in either of these options today than succumb to analysis paralysis. Cash hidden under the mattress for a career is eroding to inflation.
Sure, VTI won’t provide a $600M payout after 15 years, but it will allow you to achieve financial independence (FI). Embrace imperfection and commit.
How to Commit
Dollar-cost averaging (DCA) is the strategy I described above. It’s investing at regular intervals (commonly weekly or monthly) despite fluctuations in the market. DCA Removes emotion from the investing picture.
I remove mental barriers by acquiring VTI every Monday. Because this plan is data supported, I'm not bothered to see the price of VTI fluctuate from week to week because my end point is decades from now.
If you don’t like VTI or VTSAX, there are other funds. If you want international exposure, VT is a solid option. S&P 500 exposure only, VOO is for you. All of these serve the same purpose. Pick one as your 80 and adjust as you learn more overtime.
Traditional vs Roth Investments
There have been endless Monte Carlo simulations run on Traditional vs Roth investing. The general idea being if you are in your peak earning years, traditional (pretax) investments are superior. If your income will increase in future years, Roth (posttax) investments are superior.
Here’s the deal, both accounts offer tax advantages over taxable brokerage accounts. If you can wait to use the contributions, 401(k), IRA, and HAS contributions are for you. It’s best to research the optimal contribution strategy and do what you predict will be best for you, but at the end of the day, all of these provide an advantage over taxable brokerage accounts.
Tax-advantaged accounts have annual contribution limits. That means if you fiddle around and don’t contribute to a 401(k) in 2025, you can’t make up the contributions in 2026, 2027, and beyond. There is a deadline.
Generally, tax-advantaged accounts are good. That’s the 80. Knowing which is optimal…well, that’s the 20. And for the record, taxable accounts are a must for those looking to retire early. Not an issue with a high savings rate.
Coaching Example #1
A top recommendation for coaching clients is one I constantly remind myself. Quit holding money in a savings/checking account. Quit holding a 5-year emergency fund. INVEST IN SOMETHING!
I have CRNAs call me with $100,000 in a checking account and $200,000+ in a high-yield savings account because it provides security. Annual cost of living is maybe $150,000.
In a two-income household and W-2 jobs, it’s not great to hold $300,000 in student loans at 7% interest. Keep enough in checking to pay your monthly expenses. Keep your emergency fund in a MMA or HYSA. HYSAs were only earning 1% for quite a few years and 4% today.
PLUS these earnings are taxed as earned income. Take that 4% down to 2.5% after taxes and it underperforms inflation. Pay off student loans, invest in retirement accounts, or invest in an index fund. Put $150,000 - $200,000 of that stockpile to work. Somewhere. Anywhere. Any of these options will provide a far greater return over the next few years.
I’m 1099 and tend to hold more cash than needed. I want to be sure my tax bill is paid. Holding surplus cash is my way of keeping the IRS happy.
My monthly net worth statement has my estimated tax payments, so I can take distributions more comfortably. This is easier to do after a full year of 1099 income on the books. This is my way of keeping capital passing through the business and getting to work.
Coaching Example #2
“What to invest in?” As mentioned before, any low-cost, passively managed fund will do. A total U.S. stock market fund is great. All major brokerages have their version.
Vanguard – VTI
Fidelity – FSKAX
Charles Schwab – SWTSX
We can thank Vanguard for setting the bar for the low-cost aspect of these funds. All are essentially the same investment will nearly identical holdings and fees.
Conclusion
We have all encountered analysis paralysis. Do your research or find an expert to help create a data-driven plan you can accept as viable – Your 80.
Commit to the plan relentlessly. I’m writing this on a Saturday knowing Monday morning, I’ll be purchasing $5,000 of VTI or VUG in my Vanguard brokerage account. It really doesn’t matter if I select VTI or VUG. Both are fine. Both meet my goals. Both are within my 80. It’s the action of buying $5,000 of VTI or VUG that is most important. This conquers analysis paralysis.
Create a SMART goal around your sticking points. Whatever your roadblock, set yourself a goal to create a strategy on a given timeline. Implement that goal and reassess over time. If it’s truly supported by data, give it time to work. Give your business and investments time to succeed.
Share your struggles, learnings, and victories with those in the community. It’s reassuring to know your struggles are not unique. That’s not the solution you wanted, but perhaps comforting to know your journey isn’t different from mine nor far from that of others.
Thanks for reading.
