The choices we make – 2 February 2014

Our successes come down to the decisions that we make. Ultimately, in life and in money we are the sum of our past choices – both good and bad. Some of our choices and decisions are small and pass by without us ever realising that we made them; others are big and we may stress over them for weeks or months.

These big choices are things like whether to buy a house, which type of KiwiSaver fund to join (conservative or aggressive) or how to arrange your investments in retirement. Most of us realise that these are big decisions which will probably have far reaching ramifications and so we get the necessary information and make the best choice that we can. Nevertheless, it is often only in hindsight that we see whether we made the right or wrong decision (that the house we bought in 2001 was absolutely the right thing to do but staying with the KiwiSaver default fund was quite wrong).

A good decision making process seems very easy: gather all the facts, look at all the opportunities and possibilities and weigh the consequences including the things which might go wrong. Most of us do these things when we are making decisions almost instinctively.

However, decision making in finance is often distracted by past habits and the influence of other people. In my experience with investment, people often do not consider all of the opportunities –many people simply don’t know what they don’t know. They therefore stay with the familiar by keeping on doing what they have always done. For example, they do not know all of the investment opportunities that are available and so default to finance companies or bank deposits.

Similarly, people can be caught up in a wave of excitement for a particularly popular investment and go into it on the basis that everyone else is doing the same thing (there is a comfort of being in a crowd: if everyone is doing something, it must be right).

To default to the popular or the familiar may be easy but it is by no means the best. In fact, with investment in particular, you are often best to be a contrarian and do exactly the opposite of what others are doing. More than anything else, money is lost to investors who join the mob and go into a booming market just as it is nearing its frenzied peak. A desire to follow the crowd is a dangerous distraction to good decision making.

In one very important area there are choices to be made frequently, sometimes several of them every day. While none of these little decisions is particularly important by itself, the sum of all of them (how many we get “right” and how many we get “wrong”) is critical.

The area that I am referring to is the way that we manage our personal expenditures. We all make decisions regarding where we will spend our money: sometimes, perhaps, we may make a dozen or more of these choices each week. Usually no individual decision matters very much but the aggregate of the decisions make up a pattern which will eventually be very important indeed.

Buying your lunch for $10 may seem to make little difference on any given day but with time the difference is stark. Success or failure often comes down to a set of habits which are either good or bad and so will take you either forwards or backwards. None of these habits may look very significant on a daily basis but often these small, everyday habits accumulate and become just as important as the big decisions.

Like investment decisions, familiarity and being with the crowd may divert good decision making: you may decide to buy lunch every day because you have always bought your lunch (it’s a habit) or because that’s what everyone does at your work place.

The important thing is that decisions are taken mindfully, not mindlessly. Write down all of the alternatives and write down the pros and cons of each. Be wary of dismissing a possibility too quickly: doing something that you have never done before (whether buying into the share market or making your own lunch) may seem too hard, but in the long run it may, in fact, be the best and the easiest.

You are the choices that you have made in the past and you will become the choices that you make in the future. Good decisions mean good habits – and good habits mean success.

Martin Hawes is an Authorised Financial Adviser and a disclosure statement is available on request and free of charge, or can be found at This article is of a general nature and is not personalised financial advice.