What Is Investor Inertia and How to Beat It?

You may consider investing in the NSC or PPF, putting money in a mutual fund or investing in the ELSS to save on taxes. However, most times your plans remain only on paper. 

You could put this down to investor inertia. It is avoiding financial planning and investing idle money even though you know it’s the right thing to do. You could put this down to the fear of losing money due to a misstep or you are confused about certain financial details.

You have many investors suffering from financial inertia due to the fear of making the wrong financial decision. It could also be procrastination where you delay putting a nominee for your Demat account or you wait till the last moment to invest in tax-saving instruments. 

Why do investors suffer from investor inertia?

You have investor inertia also called financial inertia as a condition where you are comfortable doing nothing. It could be because of the fear of making the wrong decision, you are faced with many choices and struggle to make the right financial decision or you simply want to postpone investment tasks. 

For instance, you may find many citizens with financial knowledge leaving their money lying idle in a  savings bank account. Moreover, you have even some wealth managers and CXOs not bothering to invest in the right financial products because of the fear of making the wrong investment decisions. 

How to overcome investor inertia?

Fix a date to manage your money

You may consider overcoming investor inertia through simple techniques. You must allot a particular day every month to get your finances in order. It helps you arrange financial documents and you can study your investments in PPF, bank fixed deposits, mutual funds, stocks and so on.

You could also list out your life and health insurance plans. Do not wait for the end of the year to start your tax planning. Start investing in ELSS through SIP at the start of the financial year if it matches your risk profile. Get all your tax saving documents ready well before the deadline to save on tax deducted at source (TDS). 

Understand the amount you need to meet financial goals

You must set financial goals and calculate how much you need to invest to achieve them. Otherwise, you will never start saving and investing to attain your long-term financial goals. 

You must draw estimates on how much money you will need for important financial goals such as buying a house or a car, children’s education and marriage and retirement planning.

You could consider using online financial calculators such as the ClearTax SIP calculator to determine the SIP amount to attain long-term financial goals. It also helps if you choose investments that offer inflation-beating return over the long run based on your risk appetite.

You have the simple technique of investing regularly to attain financial goals. You can choose the right investment and put in small amounts regularly over some time to build your portfolio. It helps if you stay invested for the long run to enjoy the benefits of the power of compounding.

Create an emergency corpus

You need money for a financial emergency or a sudden hospitalisation. You may find investor inertia costly if you don’t build an emergency corpus. It will force you to avail of a high-interest rate loan or borrow from friends and relatives. 

You cannot postpone availing of a term life insurance plan and health insurance if you want to protect yourself and your family. It also helps if you avail car insurance and householders package policy to protect important assets such as a car and a house. 

Invest systematically to attain financial goals. Don’t postpone important investment decisions as the actual loss is worse than fearing a loss. It would be prudent to act when you have the time and the money rather than allowing financial inertia to overcome you.