Don’t Let Inertia Deprive You of a More Comfortable Future

We often avoid doing what is good for us, even when we suspect that it is better to take action. But inertia could cost us greatly, whether we save or invest.

Mark Twain once wrote: “The less there is to justify a traditional custom, the harder it is to get rid of it”. While we would never consider our financial circumstances to be trivial, we should take note of the reference (albeit playful) that Twain makes to the often insurmountable power of inertia.

Related to what psychologists call status quo bias – where we prefer the current state of affairs – inertia is the tendency to do nothing or to leave a situation unchanged. This stasis, therefore, often prevents us from taking measures which benefit us.

Consider mortgage holders who don’t deviate from the more expensive standard variable rate, homeowners who stay with overpriced utility suppliers and those with savings or investments who would benefit from changing providers. We often know we are losing money, but inertia – derived from a sense of comfort with the status quo – keeps us sitting on our hands.

What causes inertia?

Behavioural scientists believe that the root causes of inertia (and status quo bias) emerge because of a confluence of other non-rational cognitive processes. Factors which contribute to our inaction include loss aversion, regret avoidance and the fact that people attribute more value to things they already own – known as the endowment effect.

The behavioural economists Daniel Kahneman and Amos Tversky established the principle of loss aversion in 1979, proposing that the pain of losing is psychologically about twice as powerful as the pleasure of gaining. Hence, our reluctance to do anything unless the gains are worth our effort.

Similarly, William Samuelson and Richard Zeckhauser conducted a hypothetical investment choice task in 1988 which also showed the effects of inertia. Given four options the subjects were more likely to choose an investment when they were told that the money from an inheritance was already invested in that option. They were more content to take the path of least resistance.*

Of course, other reasons for inertia are not so easily categorised – with many based on fear or uncertainty. But while the motives which foster our inertia may be derived from a murky pool of emotions and biases, the results of our torpor can be very tangible.

The significant costs of inertia

Inertia may have a meaningful impact on your funds whether you save or invest your wealth. It pays to act.

At Netwealth, we stress the importance of ‘controlling the controllables’. When taking investment risk there are several factors that are out of your control: market performance, inflation and even your individual time horizon (due to changes in life expectancy). However, things you can influence that can significantly impact your wealth are:



  • Minimising fees
  • Using tax wrappers
  • Time in the market
  • Diversification


Hence, when we talk about inertia and its costs, we are not necessarily advocating wholesale changes in portfolio positioning, rather a reassessment of the ‘controllables’.

For example, holding your money in a savings account may alleviate worries about taking action, but your capital may not be as safe as it seems. Between the end of 2007 and 2017, if you had left £100,000 languishing in a bank account its actual purchasing power – after retail price inflation – would have slumped to £84,025.1

While investing money over the long term is proven to be far better than saving it, we should also be watchful of how we invest. If you invest £250,000 – in a pension, for instance – from age 45 to 65 in a balanced portfolio, with a typical wealth manager your pot could give you 24 years of an income of £35,000 per annum.2

Yet, if you choose to invest with a modern wealth manager like Netwealth - see our examples in this article - an identical investment could give you 40 years of the same income. The difference in both providers is purely due to the effect of fees, or lack of them: 1.8% a year for a typical wealth manager versus less than 0.8% a year for Netwealth. Please see our differing fee rates, which depend on the size of the total invested amount here.

It quickly adds up.

What we can do about inertia

It is safer to employ logic rather than emotion when it comes to evaluating the prospects for your wealth. So if you want to see how much inertia could cost you, it is worth doing your sums. This handy cost calculator will help.

Examine how much you could be losing if you are paying high, or even industry-standard fees, to a typical wealth manager. Or calculate how much your capital is being depleted through the effects of inflation if it remains in a savings account.

You may then take motivation from what Albert Einstein’s had to say about inertia: “Nothing happens until something moves”.

Is it time to move your money for the better?

Please remember that when investing your capital is at risk.



*'Status quo bias in decision making' by William Samuelson and Richard Zeckhauser https://sites.hks.harvard.edu/fs/rzeckhau/SQBDM.pdf

1 Return calculated as the total return on the UK 1m LIBOR Cash Index, deflated by RPI, for UK Cash.
2 Average wealth manager fees are 1.8% (source: Numis Securities research) and 0.8% for a modern wealth manager (source: Netwealth Investments). Based on a stochastic model with an assumed average return of 5.3% gross per annum for a balanced portfolio of equities and bonds. Expected duration of the pension pot is based on the median outcome across 10,000 scenarios. Past performance is no guarantee of future performance.

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