Alamy We Americans love independence and freedom of choice, believing them essential to our well-being. Yet more choice is not, it turns out, leading to more happiness or success. I believe fewer, better choices for individual investors are what we need. Research shows that a certain amount of autonomy around choice is required to achieve a basic level of happiness. However, after that certain point, more choice actually detracts from personal happiness. Too many choices result in feeling overwhelmed, often leading to the inability to make a decision. Information overload, a term popularized by Alvin Toffler in his 1970 book "Future Shock," takes place when the advantages of diversity and individualization are canceled by the complexity of a buyer's decision-making process. On the surface, it would appear that having more choice is a positive development. However, this hides an underlying problem: When faced with too many options, people have trouble determining the best choice and, as a result, can remain indecisive, unhappy and immobilized. Established finance theory has assumed that investors have little difficulty making financial decisions and are well informed, thoughtful and consistent. It's also assumed that investors are not confused by how information is presented and are not influenced by emotions. Clearly, reality does not match this theory. Behavioral finance, on the other hand, is the study of the psychology of financial decision-making and has led to great insights on how investors actually make decisions. Investors confused or uncertain about how to proceed become immobilized. When too many choices are available, inertia sets in. People fail to take action, even on things they want or have agreed to do. This inertia can act as a barrier to effective financial planning, stopping people from saving and making reasonable allocation decisions and necessary changes to their portfolios. The financial services industry is not necessarily helping investors by devising more investment options. There are currently tens of thousands of mutual funds, variable annuity and 401(k) subaccounts, and exchange-traded funds -- not to mention thousands of individual stocks and bonds and a plethora of "alternative" investments. We've got 401(k) plans with dozens of investment options. People make better decisions with a reasonable or limited number of investment options and the "right" amount and type of information about each of them. The need for diversification is one reason we're offered choices in our 401(k) plans. Investors may understand the importance of diversification, but not knowing how to achieve it, they simply adopt what we commonly call "naive diversification," or the "1/n" approach. Without better understanding, plan participants often simply allocate their funds equally across the range of options provided. For example, I've seen investors allocate 25 percent into each of four "lifestyle" funds, only to end up with the exact same allocation they'd have had if they'd selected the balanced option to begin with. But the effort lent the illusion of diversification. I argue that 20 or so investment options are more than enough to achieve proper diversification. In her book, "The Art of Choosing," Columbia University professor Sheena Iyengar shares a study of shoppers who are given an array of either 24 or only six different flavors of jam to select from. The research showed that "fantastic variety seems to favor browsers over buyers." More people spent time exploring the 24 flavors, but when it came to purchasing jam, the booth displaying just six options enjoyed far more sales. Given fewer choices, people felt they could make an informed decision and complete a purchase. Psychologist Barry Schwartz argues in his book, "The Paradox of Choice: Why More Is Less," that eliminating consumer choices can greatly reduce anxiety for shoppers. Reducing anxiety for investors should increase savings rates and confidence around decisions taken. The recent Dodd-Frank Act included provisions requiring that those who render financial advice to retail investors be held to a fiduciary standard no less strict than that of the Advisors' Act of 1940, which requires all financial advisers to put clients' best interests ahead of their own.
More choice doesn't improve an investor's experience. Fewer, better choices are what we need.
However, the opponents of the fiduciary standard argue that this legislation would reduce investment choices for middle-income and beginning investors. Good! As I mentioned in this column, more choice doesn't improve an investor's experience. Fewer, better choices are what we need. If all financial advisers had to put their clients' best interests first, we would see fewer choices. All the mediocre and poor investment options, which simply clutter up the decision-making process and do not serve the investor, would no longer be available. Fewer, quality options would result in more simplistic portfolio allocations. But simplistic allocations do not have to result in less satisfactory portfolio risk-adjusted returns. Allan S. Roth, adviser and author of "How a Second Grader Beats Wall Street," and Craig Israelsen, author of "7Twelve: A Diversified Investment Portfolio with a Plan," among others, have illustrated the effectiveness of such an approach. Simple portfolios produce similar rates of return to more complex options, are typically available at a lower cost, are low maintenance and involve minimal stress.
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Getty Images Believe it or not, there was a time in this country when the standard practice for a wedding was to have a small, intimate ceremony, followed by cake and a champagne toast at the local hall or country club. It was a simple affair that could be accomplished with minimal planning and at a reasonable cost. Oh, how times have changed. Today, the average length of an engagement is 14 months, which culminates in a wedding "event" that typically includes 140 guests, 10 bridesmaids and groomsmen, and costs over $28,000. And in some highly populated areas like Manhattan or Los Angeles, the median cost of a wedding tops the $75,000 mark. This might not be a problem in other cultures where money is the standard wedding gift. Those gifts not only helps the newlyweds pay for their weddings, whats left often leaves them with a nice nest egg to build their new life together. Unfortunately, tradition in the United States involves showering the bride and groom with much less practical gifts, such as fancy dishes and fondue sets. The failure of our gift-giving etiquette to evolve as the costs associated with getting married skyrocketed may soon require the traditional statement of "I now pronounce you husband and wife" to be replaced with "I now pronounce you deep in debt." So how can a budget-minded couple create a day to remember -- one that won't break the bank -- without resorting to paper flowers and hand-me-down gowns? Here are a few suggestions that take a little planning and a bit of creativity, but can save you big bucks on your big day: 1. Combine the ceremony and reception sites. One of the costs that most people don't think about when planning their wedding is vendor travel time. Florists, photographers, caterers, and limousine companies who have to shuttle equipment and employees all over town make sure to factor that into their quotes, so by having your ceremony and reception at the same place, you can bring the cost of their services down significantly. 2. Choose the right photographer. Nobody wants to capture their special day in a bunch of off-centered, out-of-focus shots, but professional photographers can charge thousands for their services and usually retain ownership of the photos. Instead, find a photographer whose work you like, then check to see if she has an assistant who's willing to shoot your wedding instead. Most likely, his style and quality will be on par with the pro, but at a greatly discounted price. And chances are he'll let you keep your photos. 3. Have bigger tables. It doesn't take a rocket scientist to figure out that using bigger tables cuts down on the number of centerpieces and linens you'll need. In addition to saving money, it allows your guests to converse and interact with more people, which creates a livelier event. 4. Curate the bar. Sure, you want your guests to loosen up and have a good time, but do they really need a Long Island iced tea or a Zombie in order to do that? Keeping the bar selection to wine and beer -- a red, a white, and a couple of different craft beers -- will still satisfy the crowd while keeping costs low. And if you want to add an extra, but affordable, twist, create a signature cocktail for the event to throw in the mix. 5. Cut the guest list. Although this might be the most obvious tip, it's also one of the hardest for couples to do. But the fact of the matter is, almost all other costs –- food, beverage, rental equipment, even venue size -- spring from the size of your guest list. The percentage that you cut your guest list will almost mirror the percentage in cost savings you achieve, so before you invite your father's great-uncle or your second cousin, twice removed, who you haven't seen since you were 5, make sure they really justify the expense.