Parkinson’s Law of Triviality

“The amount of attention a problem gets is the inverse of its importance.”

Many of our retirement plan participants utilize a fixed rate offered in their retirement plans, where there's a guarantee of some sort involved. Let's say that rate is 3%.

For a long time, this was very appealing. We heard a lot of, "I'm getting 1.25% on my CD's, this fixed rate is the best thing going!"

Now that interest rates are higher, some of deliberating whether or not to move to a higher fixed rate. Say somewhere between 4-5%.

In some cases, there's real money at stake. If someone has $500k in a 3% fixed account, moving to to a 5% fixed rate could result in an additional $10k of annual income ($15k annually at 3%, $25k annually at 5%.)

But you would be shocked how much time is spent analyzing the decision. Hours of online browsing, calling around in an effort to squeeze out another 0.25%.Time wasted and undue stress caused.

Morgan Housel writes:

"There’s a saying: Save a little bit of money each month, and at the end of the year you’ll be surprised at how little you still have.

Author Ramit Sethi says too many people ask $3 questions (can I afford this latte?) when all that matters to financial success are $30,000 questions (what college should I go to?)

Historian Cyril Parkinson coined a thing called Parkinson’s Law of Triviality. It states: “The amount of attention a problem gets is the inverse of its importance.”

Parkinson described a fictional finance committee with three tasks: approval of a $10 million nuclear reactor, $400 for an employee bike shed, and $20 for employee refreshments in the break room.

The committee approves the $10 million nuclear reactor immediately, because the number is too big to contextualize, alternatives are too daunting to consider, and no one on the committee is an expert in nuclear power.

The bike shed gets considerably more debate. Committee members argue whether a bike rack would suffice and whether a shed should be wood or aluminum, because they have some experience working with those materials at home.

Employee refreshments take up two-thirds of the debate, because everyone has a strong opinion on what’s the best coffee, the best cookies, the best chips, etc.

Many households operate the same."

The clients deciding whether or not to move a fixed rate to another fixed rate are asking $3 questions. Should those conversations be had? Sure. But it's given too much attention relative to it's impact. It's the bike shed or refreshment conversation.

The $30k question should been what long-term returns am I giving up in order to keep a portion of my portfolio intended for long-term investing in a stability of principal contract? In many cases, the answer is hundreds of thousands of dollars. But we skimmed over this, much like the $10m nuclear reactor.

--

^{Source: The Art and Science of Spending Money (Morgan Housel)}