Financial Inertia

One of the most powerful forces in the universe is that of inertia. It is defined as a property of matter by which it continues in its existing state of rest or uniform motion in a straight line, unless that state is changed by an external force. The simple definition is ‘a tendency to do nothing or to remain unchanged.’

Sir Isaac Newton defined his first law of physical systems as follows: “The vis insita, or innate force of matter, is a power of resisting by which every body, as much as in it lies, endeavors to preserve its present state, whether it be of rest or of moving uniformly forward in a straight line.”

How well the law defines our human patterns. In fact, Newton’s own definition includes a couple of words “innate” (suggesting of-nature) and “endeavors” (as one might will) to describe tendencies of lifeless matter from a human perspective.

We know too well how hard it is to rise once we’ve settled into a comfortable repose on a beach, a comfortable sofa, or you fill in the blank. We find it just as difficult to break a time-tested habit we’ve adopted as a way of life. Sociologist Todd Gitlin says that “human inertia makes the everyday environment, the furniture, as it were, appear to be a given.”

We continue to do what we are doing until there is sufficient reason, drive, or motive to change. In fact, the term inertia is a more desirable descriptor of our less-than-optimal tendencies than more accurate terms, such as busyness, stubbornness, laziness, fear, doubt, and at the extremes ignorance and selfishness. Who wants to be associated with these terms?

The good news is, we don’t have to remain stuck on the wrong side of the law. Inertia can work just as powerfully in our favor as against us. An object in motion can be re-directed or stopped and an object at rest can be brought into motion. In physics, the change requires energy. So too in human terms the change requires energy, sometimes measured in sweat, but always by determination and commitment.

For example, we might determine to be less busy about the many unimportant things in our lives to become more proactive and intentional about the important things of our lives. We could decide to shake off stubbornness to become more open to new ideas, less fearful to embrace new opportunities, adventures, and challenges, less selfish by continually finding new ways to share the bounty of our wealth and experience.

The more choices we make toward improvement, the more energy builds, first to brake or re-direct the less beneficial inertial forces, and ultimately to add positive momentum to our purposes, just as in physics. The greater the mass or weight of an object, the greater the inertial effect, or alternatively, the more energy it will take to slow or stop it.

The most difficult task we face as wealth managers is overcoming people’s inertia, both on a macro level and on a micro or personal level. An all-encompassing phrase is the financial STATUS QUO. At the macro level, the largest part of the financial services industry is focused on selling products and services to an investing public and successful sales require motivating people from their state of inertia. All good marketers know that emotions are the most important element of the human decision process and fear and greed are an integral part of the investing process.

But to return to our analogy, emotions and the products and services that cater to them are rife with friction that only slows the momentum of the capital markets. Successful life-planning and investing minimizes the friction that slows momentum or mis-directs, and it maximizes the positive momentum of the capital markets, minimizing mood swings, taxes, expenses, and under-performance.

On a personal level, the status quo, or inertia comes in many shapes and forms already described and at great cost to potential wealth and lifestyle. If only people could fully grasp the tremendous benefit that capital market momentum (i.e. compounding) optimally-aligned with priorities and goals could have on their future wealth and lifestyle,

But the reality is that change from the status quo takes small steps, time and persistence, so persistent we will remain. As Max McKeown reminds us “Change is not overcoming inertia as much as it is redirecting, guiding, tweaking what already is and what has already happened. We must believe that we can make choices and that those choices can alter the future.”

We are in the business of altering our clients’ financial futures for the best, by ‘redirecting, guiding, tweaking what already is and what has already happened.’ Optimal is always possible – but better sooner than later.