Finding Your Frame
Clarity depends on contrast, or your frame of reference. A lot of times you understand something better when you see it in comparison with something else as opposed to seeing it in isolation. It is also called the contrast principle.
The most essential question you can ask yourself is, “Compared to what?”
You can ask the question by framing an offering in ways that contrast with other choices and therefore clarify its virtues.
The Less Frame
You love choices. However, research has shown that in some cases too many choices can be bad. In a well known study, Sheena Iyengar of Columbia University and Mark Lepper of Stanford University set up booths in an upscale grocery store. They offered shoppers the chance to taste different flavors of jam.
At first, the booth had 24 varieties of jam. Then a week later, the researchers set up another booth with only 6 flavors. More consumers stopped at the booth with more selection than the one with fewer choices.
When the researchers reviewed the purchases, they were very surprised! Of the customers who visited the booth with 24 varieties, only 3 percent bought jam. At the booth with a limited selection, 30 percent bought jam.
Choice Overload
The results were striking! The results undermined economic theories of rational choice. One would think that having more, rather than fewer, choices is a lot more desirable and much more motivating. It all depends on the framing.
Nevertheless, in this case, having too many choices seems to have hindered consumers’ motivation to buy.
Investment Choices
When you invest, how many options do you prefer? There is no correct answer. Personal finance is personal and everyone has different financial goals, varied assets, and unique life circumstances.
One person can have a portfolio with as little as 6 investments, while another can have as many as 24 investments in their portfolio. It all depends on your preferences.
Regardless of the number of investments, the most important point is that each investment should be owned for a reason. The reasoning should be simple, precise, and clear cut. What’s your goal and does each investment meet that goal or help you reach that goal in the future?
If you want to know if your portfolio is helping you reach your goals, drop me a line. Feel free to set up a complimentary consultation.