Social psychologists reference the “Boomerang Effect” as a reaction to being persuaded.  When we “boomerang”, we do the opposite of what we are being persuaded to do – this reaction helps us feel like we’re taking back control while being persuaded makes us feel like we’re losing control.  Said differently – people hate being sold, but they love to buy.

The Boomerang Effect can be useful.  We can all identify times in our life when a salesperson led with features and benefits without having the slightest idea of our needs.  Being a boomerang might be a useful coping mechanism to avoid bad advice.

The Boomerang Effect can also hurt us.  We allow our desire for control to supersede the benefit an idea, product, or practice may offer.  Simply because the way something is being presented to us via persuasion, we resist the good it may offer so that we might boomerang and regain perceived control.

The unfortunate truth is that blind resistance to all (or much of) persuasion 1) deprives us from a lot of good and 2) does not actually help us gain control.

For illustration, here are examples of the boomerang in my life:

  • I’m curious about a subscription service that offers a free trial.  The moment they ask for credit card information so they can begin charging me after the free trial is over, I typically pass on experiencing the free trial.  What if this service could add great value to my life?  Frequently, I’ll never know because asking for my payment information makes me feel persuaded.
  • My wife expresses discomfort with my speed driving through the YMCA parking lot.  My natural inclination is to not adjust my speed, purely because I feel persuaded.  But, she’s right.
  • My insurance agent suggests umbrella coverage.  First, I see a large commission for him before I see the legitimate reasons I should be considering.
  • During potty training for our children, each have shown moments of resisting use of a toilet because they feel persuaded.  They don’t feel in control even though being clean is more desirable.

Now, how about some examples in our financial lives?

The chart below shows the increased likelihood of seeing our portfolio decline as the quantity of monitoring it (statement reviews, client log-in) increases.  No surprise, we observe far more declines as we log-in to our account more often.  So what?

A screenshot of a cell phone Description automatically generated

Behind this data is additional data that shows us the gyrations in our behavior that ensue.  One step further, we’re not simply off the hook just because we didn’t sell everything and go to cash if our statement had some red ink.

Daily and monthly account monitoring affects more than our investment behavior.  It plays a role in our daily decision making of whether we can afford a large purchase, a great vacation, or a gift to our families or charity.  Something we were on the fence about is suddenly off the table because of a bad month in the market (which is likely inconsequential).  We might even be less patient with our children or spouse.

The boomerang effect of watching our bank accounts and brokerage accounts is financial paranoia – we feel more in control, all the while losing control as our anxiety increases throughout our daily decision making.  We’re better off reassessing our risk tolerance, choosing a portfolio, and moving on with life.  Daily and monthly swings do not impact our lives.  By the way, this is not without compassion.  I share in the experience.

Here’s another example.

In the financial blog, Of Dollars And Data, Nick Magguili lays out all conceivable data as to why lump sum investing is nearly always to our advantage compared to traditional dollar cost averaging (investing spread out in smaller increments).

He draws an ultimate punch line that something is better than nothing, but we’re nearly always better off deploying our capital now – across asset classes, time frames, and various valuations.

Why, then, do we boomerang on this concept?  I suspect someone persuading us to be fully invested beyond our emergency dollars feels like we’re being sold and like we’re not in control.  Searching for new investment ideas and timing our deployment makes us feel in more control.

Seeking control and escaping the unknown – even to our own detriment – is a daily struggle for all of us.  We actually choose self-sabotage.  Not beating ourselves up and being aware of the blind spots is key.

Where do you boomerang?

Stay calm.  Stay invested.

Thanks for reading,

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