How Perfect Should A Decision Be?

No decision is perfect

At least not for long. So what is the value of addressing the last 5% or 10% of the possible perfection?  You need a rule to decide.

Alex Stermac’s law

Suppose I give you the choice of two life annuities that purport to be identical in the contractual conditions. One is from a huge multinational financial institution with a 125 year history. The other is from a smallish, relatively new institution. The difference is that the old established business will will pay you $2,100 per month given your capital and the newcomer will pay you $2,250 per month.

Application of the Law:

“The extra $150 per month is about $80 after taxes. If I chose the newcomer, $80 is not enough to buy the Valium supply I would need to keep me in a happy place.”

There are always other factors.

Money is just one part of the transaction. The idea of an investment and its potential income is to make your life better. It is not smart to get small gains at the expense of peace of mind.

You can always improve your yield, but yield is a number. You can’t spend percentages, you can only spend money. When you throw in time, the problem gets a bit untidy. How many people can decide how much more a month they would need to save to get the right answer at retirement if they invest at 6% with little risk versus 7% with more. The monthly savings difference is the cost of peace of mind.  People need to know the dollar number before they decide on one versus the other.

Know the price of getting what you need.  

Not just the money; the peace of mind too. Live well at retirement and sleep well in the meantime.

As Dr. Sarah would say, “How good does good enough need to be before you decide the problem is solved.” 

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario. 

In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.

Please be in touch if I can help you. don@moneyfyi.com  866-285-7772

This entry was posted in Investing, Personal Finance, Planning and tagged , , . Bookmark the permalink.

One Response to How Perfect Should A Decision Be?

  1. John Page says:

    Where in the heck do you find these things? “Alex Stermac’s law.” Great article.

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