Don't Be a Victim of Investor Inertia

In a recent article on investing about how risk is not your enemy as an investor, I closed with the following line: “As an investor, risk isn’t your enemy. Inertia is.”

You’re a doctor, not a physics professor, so here’s the definition of inertia: “the property of matter by which it retains its state of rest or its velocity along a straight line so long as it is not acted upon by an external force.” For the purposes of the investor, we can go by the common way of thinking about it: an object at rest tends to stay at rest.

When it comes to your retirement savings, are you at rest? Are you putting saving off for tomorrow? A better time? That next raise? Once the car is paid off or the kids graduate from college?

If so, take a baby step forward. You may find that the corollary to inertia—objects in motion tend to stay in motion—is also true. Let’s get you started.

Start now. Putting aside even a small amount now can be the difference between trying to play catch-up in later years and reaping the rewards of compounding. Compounding is when your savings and investments earn interest, and that gets added to the funds, and then that earns interest. If it sounds like it might be a trivial amount, it’s not. Over time, compounding can really add up.

Save it before you can spend it. Automatic withdrawals into a 401(k) or 403(b) plan work really well as a way to save money before it even enters your bank account. How closely do you actually look at your pay stubs? There are likely categories of taxes you’ve never heard of being taken out. Put on a self-tax: the 401(k) tax. Pay it to yourself. Ironically, it won’t be subject to actual tax until you withdraw it!

Match up. Many employer match a certain percentage of what you put into a 401(k) or 403(b) plan. If you’re not contributing, you’re leaving part of your income on the table. Your employer wants to give it to you. It’s part of your overall compensation package. Why are you turning it down?

Start small. While it’s wise long-term to max out your retirement plan if you can, and it’s always wise to max out the employer-matching part of any plan, don’t let the perfect be the enemy of the good. Put simply: if you can’t max out right now, don’t let that stop you from saving what you can, when you can.

You may find that once you get in motion, you’ll stay in motion. All it takes is those first few steps.