Many of us are naturally inclined to resist change, especially when it comes to our finances.
This tendency is known as status quo bias, where we prefer things to stay the same, even if
changing our approach might lead to better outcomes. Whether it’s holding onto
underperforming investments, sticking with outdated financial strategies, or avoiding necessary
adjustments to retirement plans, this bias can negatively impact your financial well-being.
3 Reasons We Resist Change
Status quo bias stems from deeply ingrained psychological tendencies – here are three of the
most common:
- Fear of Regret
You might be afraid that making a change could lead to a worse outcome. By staying the
course, you’re avoiding the risk of future regret.
- Comfort with Routine
There’s comfort in the familiar. Changing financial strategies sometimes requires
stepping outside of your comfort zone. As a result, you might stay the course, even
when it’s not in your best interest.
- The Complexity Trap
The sheer complexity of a major financial decision can lead to decision paralysis, where
you opt to do nothing simply because it feels easier than wading through the choices.
The Impact of Keeping the Status Quo
Sticking with the same strategy can feel safer, but it can be costly in the long run. Here are
some ways this bias can affect your financial health:
● Sticking with Underperforming Investments: Holding on to investments that are no
longer serving you, simply because it feels easier than reevaluating your portfolio, can
erode returns and prevent you from reaching their long-term goals.
● Delaying Necessary Adjustments: Whether it’s updating your estate plan, reassessing
your retirement strategy, or revising insurance coverage, sticking with what’s
comfortable can result in missed opportunities for improvement and protection.
● Ignoring Market Shifts: The financial landscape is always evolving. Holding onto old
strategies without adapting to new market conditions can mean missing out on growth
opportunities or taking on unnecessary risks.
How to Break Free from Status Quo Bias
Our goal is to help you overcome the barriers that prevent you from making the right financial
decisions. Here are some strategies that might help:
- Embrace Incremental Changes
Change doesn’t have to be drastic. Making small, manageable adjustments to your
investments or financial strategies can help you ease into a new approach.
- Review Your Financial Plan Regularly
Life changes, and so should your financial strategy. Scheduling regular reviews with
your advisor can help ensure your plan evolves alongside your needs and the market
environment.
- Focus on the Bigger Picture
Try to separate your emotions from your financial decisions. Instead of focusing on
potential short-term discomfort, consider how a change might benefit you in the long
term.
- Leverage Expert Guidance
Sometimes, having a second set of eyes on your financial plan can provide the
objectivity needed to overcome status quo bias. As your advisor, we can help you see
the opportunities that change can bring.
Status quo can also affect more than just your investment choices—it might also keep you tied
to a financial advisor who no longer fits your needs. If you’ve ever wondered whether a fresh
perspective could serve you better, don’t let the comfort of familiarity hold you back. Reach out
to us for a consultation.
Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.
This information has been obtained from sources considered to be reliable, but we do not guarantee that the forgoing material is accurate or complete. You should discuss any legal matters with the appropriate professional.
This information was developed by the Oechsli Institute, an independent third party. The opinions of the Oechsli Institute are independent from and not necessarily those of RJFS or Raymond James.
