New Here? Get the Free Newsletter

Oblivious Investor offers a free newsletter providing tips on low-maintenance investing, tax planning, and retirement planning. Join over 21,000 email subscribers:

Articles are published Monday and Friday. You can unsubscribe at any time.

The 30-Day Rule (as Applied to Investing)

I know many frugally minded people like to use something called the “30-Day Rule” to help curb their spending. Here’s how Leo from ZenHabits once explained it:

Make a new rule: you can’t buy anything (except necessities) until a 30-day waiting period has passed. Put a 30-day list on your refrigerator, and when you have the urge to buy something, put it on the list with today’s date. After a month has passed, you can buy the item. Many times the urge will have passed and you can just cross the item off the list.

The reasoning is that when we see a shiny new toy, we want it. Our emotions kick in and attempt to overtake our more sensible lines of thinking. If we delay action, it gives the emotion a chance to subside somewhat, thereby allowing us to think clearly about whether making the purchase really does fit in well with our goals.

Let’s apply it to investing.

How about this: Every time you’re tempted to adjust your portfolio in some way, don’t. [Noteworthy exception: Regularly scheduled rebalancing.] Instead, write down your idea, your reasoning behind it, and the date. 30 days later, if the reasoning still makes sense, then (perhaps) give it a go.

For example…

  • Many investors are tempted to respond emotionally to big market swings.
  • Other investors are frequently tempted to “tinker” with their portfolios.

Give it 30 days. If it truly made sense in the first place, it should still make sense a month later. On the other hand, if the idea doesn’t seem so wise when considered again 30 days later, it’s likely that your emotions were getting the better of you originally (even if you were unaware of it).

Quick note: The rule only works when we’re talking about portfolios with a lengthy investing time frame. (An asset allocation that makes sense for 15 years is probably also a good one for 14 years and 11 months, but an investment that is ideal for a 3 month time frame may not be fitting for a 2 month time frame.)

It’s difficult–if not impossible–to eliminate the emotional urges to take unwise actions (whether buying some unnecessary luxury or pulling out of the market after a drop), but what we can do is put systems in place to help overcome those emotions.

New to Investing? See My Related Book:

Book6FrontCoverTiltedBlue

Investing Made Simple: Investing in Index Funds Explained in 100 Pages or Less

Topics Covered in the Book:
  • Asset Allocation: Why it's so important, and how to determine your own,
  • How to to pick winning mutual funds,
  • Roth IRA vs. traditional IRA vs. 401(k),
  • Click here to see the full list.

A Testimonial:

"A wonderful book that tells its readers, with simple logical explanations, our Boglehead Philosophy for successful investing." - Taylor Larimore, author of The Bogleheads' Guide to Investing

Comments

  1. Fresno Money Coach says:

    Great advice. If you ever hear yourself say, “but I might miss the window of opportunity,” then you are not investing in the Market. You are trying to Time the Market. Don’t go there.

  2. Miranda says:

    While you can never completely eliminate emotion from your investing decisions, I think that this rule goes a long way toward minimizing it. If you’re always reacting to the latest “crisis”, then you are not actually in control. The 30-day rule is a good way to help you avoid being completely at the mercy of market sentiment and your own visceral response to it.

  3. I would add an addendum: If the reason for changing your stock allocation still applies at the end of the 30-day waiting period, be sure to make the change. There are good reasons for changing your allocation and bad ones. If the reason survives a 30-day waiting period, that’s a good sign that a change is indeed needed.

    Rob

  4. Dave C. says:

    The funny thing is, my worst performing stocks are the ones that I bought on a whim. It is an important lesson to be learned, if not an expensive one.

Disclaimer: By using this site, you explicitly agree to its Terms of Use and agree not to hold Simple Subjects, LLC or any of its members liable in any way for damages arising from decisions you make based on the information made available on this site. I am not a financial or investment advisor, and the information on this site is for informational and entertainment purposes only and does not constitute financial advice.

Copyright 2020 Simple Subjects, LLC - All rights reserved. To be clear: This means that, aside from small quotations, the material on this site may not be republished elsewhere without my express permission. Terms of Use and Privacy Policy

My new Social Security calculator (beta): Open Social Security