🟣🟢 Stuck with an old plan?

Happy Sunday…👋

It’s the time of the year when I like to de-clutter my wardrobe.

I pack away the winter layers and make room for my summer clothes.

And while I’m at it, I try to clear a few things out.

But it’s never easy.

The things I’ve worn to death? No problem. The bobbly jumpers, tired tops, worn out shoes. Out they go.

It’s the things I haven’t worn that are the hardest.

You know the ones. The jacket that was expensive but never quite right. The top that suited someone I imagined myself to be, not who I am.

Some items even have the tags on still!

Why do I find them so hard to get rid of? I don’t wear them, I doubt I ever will.

This is the sunk cost fallacy at work.

Because I paid good money for these items.

And it turns out it’s not just a wardrobe issue. It affects our money decisions too.

More than we realise…👇

Why do we do this?

Behavioural economists have studied this for years. Three core biases explain why we hold on to things that no longer serve us:

1. Loss aversion – We feel the pain of loss more than the pleasure of gain. Letting go of that jacket feels like accepting a loss, even though the money’s already gone.

2. Commitment bias – Once we make a decision, we like to stick with it. It feels uncomfortable to admit it didn’t work out. Whether it’s a coat, a holiday let, or a pension provider.

3. The endowment effect – We tend to overvalue things just because we own them. That jacket might not be worth £300 to anyone else, but it feels like it still is to me.

In short: we justify, we delay, and we stay stuck.

Even when we know, deep down, it’s not the right choice anymore.

Where this shows up in financial planning

I regularly come across people who are holding on to individual shares without good reason. Sometimes it’s sentimental but often they can’t bring themselves to take a loss.

And I’ve also noticed recently that people with pensions and investments held with St. James’s Place (SJP) are having similar conflicts. These are thoughtful, successful people and many have been clients of SJP for several years.

But the media scrutiny around their opaque charging structure and the fact that SJP has set aside £426 million to cover potential client refunds and compensation following FCA scrutiny over a number of issues, has made them wonder.

But when it comes to it, it’s hard to make a change when there is a penalty to move.

That’s sunk cost thinking. And it's incredibly common.

So what’s the alternative?

When you’re considering an existing plan or investment here’s a question to ask yourself:

“If I had this money in cash today, would I choose to invest it in the same way again?”

If the answer is yes, then great. That’s a strong reason to stay.

But if the answer is no, or even I’m not sure, it might be time to take a step back and look at your options.

A few simple ways to reset

Avoiding the sunk cost trap doesn’t mean acting rashly.

It just means pausing long enough to make sure your decisions are about the future, not the past.

Here are a few ways I help clients do that:

• Focus on what happens next. Look at future returns and value, not what’s already been spent. What’s the likely impact over the next five, ten, twenty years?

• Set a review point. If something doesn’t feel quite right, mark a point in the calendar when you’ll look at it properly, with fresh eyes.

• Get an outside view. It’s hard to be objective when you’re emotionally invested. That’s where advice helps. A good planner can walk you through your current setup, run the numbers, and help you see whether there’s a smarter way forward.

Final thought

Writing this article has helped me make the hard decision…

…That jacket’s in a black bag to go to the charity shop tomorrow!

And if there’s something in your financial life that feels similar - a pension, an investment, a plan you made years ago that no longer feels like it fits - I’m happy to talk.

😎 THAT’S IT FOR THIS WEEK!

If you need any help with your financial stuff, would like to know more about our services, or have any questions at all, do ping me a reply.

Hilary 😎

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