Struggling for Investment Answers? It Helps To Reframe The Question

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Photo-Illustration by Alexander Ho for TIME; Frame: Getty Images

Tom ran a public opinion survey a while back where some of the respondents were asked if they believed they could save 20% of their income. Only half said yes. But when the other respondents were asked if they thought they could live on 80% of their income, nearly eight out of 10 said they could. As the saying goes, it all depends on how you look at it.

Or, as a behavioral economist would put it, this seemingly strange result was caused in part by a cognitive bias called the framing effect, whereby the way a choice is presented can profoundly influence our decision, and even reverse it.

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We were inspired to bring up the framing effect by a recent  “Economic View” column by Richard Thaler in The New York Times, in which he discusses the role of uncertainty in decision making. More specifically, he notes the way in which the anxiety of not knowing the future can contribute to decision paralysis.

This is certainly the case with stocks these days, in that investors who otherwise have the wherewithal to put into the market are instead stashing their cash in U.S. treasuries or money market funds. As we’ve written before, we’re generally against such an approach, because it amounts to market-timing, which is something most (if not all) investors are ill-equipped to do and will likely result in your missing out (at least partly) when share prices bounce back in earnest.

That said, we’re realists. So, if you’re keeping your money on the sideline because you believe stock prices are likely to stay flat or even fall for the foreseeable future, a little reframing might be just the tonic for you. That is, if anticipated market returns aren’t enough to lure you into stocks, you might do well to search for other “alternative investment opportunities” that offer better returns than meager money market rates.

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In his column, Thaler highlighted improvements to make your home more energy-efficient, thereby cutting your energy bills — echoing the suggestion of our fellow TIME Moneyland columnist J.D. Roth. We can think of a few other such actions, some you’ve likely considered and some you may have have missed:

  • Paying off credit-card balances or other short-term/high-interest debts, which can often “return” 15% or more annually (in eliminated interest payments);
  • Accelerating student-loan payments, which for many borrowers will translate into annual “returns” of 5% to 10% for every year you knock off (even after factoring in lost interest deductions);
  • Accelerating mortgage payments, which for most homeowners means annual “returns” of 3%-5%;
  • Raising your insurance deductibles—which can lower your premiums significantly—on the theory that any unfortunate claims surprise will be covered by the “self-insurance pool” you call a money-market fund; and
  • Gym equipment or memberships, smoking cessation classes and any other “self-investments” that will make you less of a long-term insurance risk and potentially lower those premiums.

Obviously, these are not investments in the way IBM or Index Fund shares are. But by reframing how you see your sidelined savings you might be able to generate returns in other ways. (You might also stimulate the economy in your own small way.) Better still, you may even add to your general well-being. That is, we know a lot of people whose frustration and stress levels are higher than usual because they don’t know where to invest their money. But we don’t know many folks who wouldn’t be less frustrated or stressed if they were a little healthier and owed a lot less money.

Feel free to let us know if you have other ideas for these kinds of  “alternative investment opportunities.”

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