I Occasionally Sunk
Posted : admin On 4/5/2022How hard is it to change directions when you’ve made a bad investment? Learn from your financial mistakes! Here are some places that you may be falling prey to the sunk cost fallacy.
Have you ever noticed how incredibly hard it is to pull the plug on a bad investment? While this may be true for most people, I think we tightwads of the world may have an extra tough time letting go. Given our aversion to wasting anything, it can be extremely difficult to admit when we’ve done it.
Sunk definition, a simple past tense and past participle of sink. Sank is the past tense (e.g., the ship sank to the bottom of the sea). Sunk is the past participle, so it’s used in the perfect tenses (e.g., the ship has sunk to the bottom of the sea) and as an adjective (the sunk ship is at the bottom of the sea). List of shipwrecks: Unknown date in 1869 Ship Country Description A. Ruthven United States The screw steamer was lost during 1869.: Ann Corbett: Unknown The schooner was lost in the vicinity of 'Squan Beach,' a term used at the time for the coast of New Jersey near Manasquan and sometimes for the 7-mile (11 km) stretch of coast between Manasquan Inlet and Cranberry Inlet or for the entire. And therefore sometimes the people seem to be tempted to cover some of these mistakes, or otherwise some of them may well be tempted not to throw good money after bad. So there are quite a few managerial and just human aspects to that. But again, for cynical and tough finance, sunk.
My first insight into how tightly I could chain myself to a bad investment came when I was still just a kid. My parents had insisted I play an instrument. I’d chosen the clarinet, and I had to practice for 30 minutes a day. After years of this daily torture, it was clear to everyone involved that I would never be a clarinet virtuoso. Even the family dog howled in agony when I played. My parents finally relented and told me I could quit. I, on the other hand, gritted my teeth and kept going for another three years. Not because I liked it (I hated it, actually) but because I had already put in so much time that I couldn’t bear to stop.
Behavioral economists will tell you that this is a known and extremely common tendency. (Too bad for my dog that nobody explained this to me in junior high.) For example, Gary Belsky and Thomas Gilovich address this mental pitfall, among many others, in their wonderfully insightful book Why Smart People Make Big Money Mistakes. They refer to it as the “sunk cost fallacy.”
According to Belsky and Gilovich, “This tendency is harmful for the simple reason that past mistakes shouldn’t lead you to make future ones. The past is past, and what matters is what is likely to happen from now on. So a person who turns down an offer for a house because the bid is lower than the original purchase price may be following one blunder (paying too much in the first place) with another (not getting out while the getting is good).”
Below are some places where you may be falling prey to the sunk cost fallacy.
You deserve a comfortable retirement.
Subscribe to After 50 Finances, our weekly newsletter dedicated to people 50 years and older. Each week we feature financial topics and other issues important to the 50+ crowd that can help you plan for a comfortable retirement even if you haven't saved enough.
Subscribers get The After 50 Finances Pre-Retirement Checklist for FREE!
Subscribe to After 50 Finances, our weekly newsletter dedicated to helping you plan for a comfortable retirement even if haven't saved enough. Subscribers get The After 50 Finances Pre-Retirement Checklist for FREE!
Retaining assets that have lost their value
Hanging onto an unsuccessful business, a car that frequently breaks down, or a stock that’s plummeting in value? Reassess that asset’s true value now (both financially and emotionally) to help you determine whether to hold tight or jump ship.
Sticking with bad financial choices
For years, I failed to participate in a plan at my company that would have allowed me to buy stock at a discounted price. Although this meant turning down a virtually guaranteed profit, failing to put the necessary money aside in the first year I worked there made it easier to justify skipping this during each subsequent year. It took me a decade to acknowledge the money I’d already wasted and take action to reverse my decision.
Compare CD Rates
Get the interst you deserve. Compare rates with this tool from an After 50 Finances trusted partner.
Holding on to clutter
Got closets full of dated clothes, old toiletries, mismatched Tupperware, or other stuff you don’t use? Make a decision to use it now or donate, recycle, or sell it. Clutter may apply to your investments or financial records as well. If you’ve got a bunch of different little 401k funds from past employers, for example, it may behoove you to consolidate.
Shooting your happiness in the foot
Busting your butt for an apartment, nice clothes, or other material goals may have seemed like a reasonable idea when you were younger, for instance, but remember to regularly examine how much satisfaction your priorities are bringing you today. Continuing to climb the corporate ladder only makes sense if the top is still where you actually want to be.
If after taking stock of your investments in both time and money you discover lots of places where you’re throwing good resources after bad, don’t be too hard on yourself. If your old dog died years ago, your new one will still thank you for ceasing to play the clarinet. And as Belsky and Gilovich point out, sometimes the sunk cost fallacy actually works for us. One example they cite is gym memberships. If your aversion to losing your original investment provides the motivation you need to pry yourself off the couch, then that’s a good thing. At the end of the day, the more we can learn about our own spending biases, the more skillfully we can use them to help us prosper.
A Tool to Determine the Best Time to Take Social Security Benefits
Don't leave thousands in Social Security benefits unclaimed by collecting at the wrong time.
Related:
You deserve a comfortable retirement.
Subscribe to After 50 Finances, our weekly newsletter dedicated to people 50 years and older. Each issue features financial topics and other issues important to the 50+ crowd that can help you plan for a comfortable retirement even if you haven't saved enough.
Subscribers get The After 50 Finances Pre-Retirement Checklist for FREE!
You deserve a comfortable retirement.
Subscribe to After 50 Finances, our weekly newsletter dedicated to people 50 years and older. Each issue features financial topics and other issues important to the 50+ crowd that can help you plan for a comfortable retirement even if you haven't saved enough.
Subscribers get The After 50 Finances Pre-Retirement Checklist for FREE!
Popular Articles
Will You Be Leaving Thousands In Social Security Benefits Unclaimed By Filing at the Wrong Time?
We recommend a tool from Social Security Choices that can help you determine the best time to collect so you can maximize your benefits.
Click here to maximize your Social Security benefits.
On TheDollarStretcher.com
I Occasionally Sunk
Will Joe Biden have the guts and/or the sense to recognize sunk costs?
There’s not a single person that has spent significant time on the ground in either of those conflicts that thinks either of them are winnable, but they just continue off of a sense of momentum. And getting back to that lack of accountability, not actually having anything be aligned to an objective, nobody could say what winning looked like when I was in Iraq. Our job was to run out the clock, turn off the lights, and close the door. In Afghanistan, same thing. The endless wars notion is just that these wars will continue to go on, because at the end of the day they’re not our wars to fight. We’ve inserted ourselves into the middle of civil wars; we’ve taken sides. Sometimes those sides switch. In Iraq, we’re backing the Sunnis one time, we’re backing the Shia the other. In Afghanistan, it becomes a shifting set of alliances.
I Occasionally Sunk Face
Ultimately I think that erodes something at the core of our national soul that we kind of paper over. That’s something that I’ll have to sit on a therapist’s couch to better understand.
I Occasionally Sunk Sunky
This is from Matt Welch, “Amash’s Successor Peter Meijer: Trump’s Deceptions Are ‘Rankly Unfit’,” Reason, January 8, 2020.