• Hugh F. Wynn

Life's Complicated Enough. Keep Investing Simple.

Be boring. Be simple. Be unsophisticated. You’ll be in good company. According to many great minds, high-browed sophistication and complexity does not beat simplicity when it comes to investing. So...dare to be average. Since I’m not a credentialed financial advisor, the answers (observations) I give are strictly my opinion.


Theory of Simplicity

I admire smart people, particularly those who espouse simplicity. Take Albert Einstein, for example, who is rumored to have said:

The five ascending levels of intellect are: smart, intelligent, brilliant, genius, and simple…that everything should be made as simple as possible, but no simpler.

In my later years, I believe that when it comes to personal finance/investing, simple products and methodologies are often your best bet. My past experience with matters that were more complex than they needed to be seemed always to result in wasted effort, additional taxes, costly transactions, and if a third party advisor (Wazoos, I call ‘em) was involved, more of my money flushed down the drain.


Packaged Products

Ever wonder why folks buy whole life insurance - a policy almost always combined with a lousy investment? I also lump disability insurance and long-term care policies in the same category. In my opinion, they are just investment products packaged and sold to folks under the guise of a "wise investments" or tools that will come to your rescue in times of emergency, old age, or unfortunately, someone's death. However, in the meantime your money is not working for you.


In reality there are far better - and simpler - investment tools that serve the same purpose, including term life, index funds, a Roth IRA, and a Health Savings Account. Or, as Benjamin Graham, another old stalwart in the investment game, said:

In the stock market, the more elaborate and abstruse (puzzling) the mathematics, the more uncertain and speculative are the conclusions drawn therefrom.

Say What?

Warren Buffett, the "Omaha Oracle" and a big admirer of Vanguard founder, John Bogle, said:

To invest successfully, you need not understand beta, efficient markets, modern portfolio theory, option pricing or emerging markets. You may be better off knowing nothing of these.

I’m glad he closed with that “knowing nothing” statement about things like beta and option pricing because that’s a space I occupy. In my experience, seeking just a tiny bit more data often clouded more than cleared up any investment issues I had. Keep it simple.


While we're on this roll, Bogle said,

The great paradox of this remarkable age is that the more complex the world around us becomes, the more simplicity we must seek in order to realize our financial goals. Simplicity is the master key to financial success. Indexing is simple and, sad to say, boring. But be bored by the process and the outcome just might elate you.

And Rick Ferri said it another way.

Don’t assume that a complex strategy is better than a simple strategy. Usually all it does is add to the cost.

Fools Rush In

When discussing my keep-it-simple "Dare to be Average" investment strategy, I’ve had acquaintances tell me, “I’m not seeking boredom. I need the rush.” To which I reply, “If your style of investing gives you a rush, you might be doing something wrong. Investing is not meant to give you a rush.”


It seems to me that too many folks equate complexity (difficulty) with sophistication. I believe that that it works the other way. It takes a certain amount of sophistication to build a truly simple and profitable investment portfolio.


Take Bogle, for instance. He was a billionaire who could afford to invest in any stock or scheme he set eyes on but he passed through life helping tens of millions of investors realize far better investment returns than they otherwise would have earned, mostly by emphasizing simplicity.


Why be Average

Next to saving, one of the hardest thing to accomplish as an investor is daring to be average. “Why,” you ask, “would I want to just be average?” Think about it: If you invest in a Total Stock Market Index fund or an S&P 500 Index fund, you’ve deliberately chosen to be satisfied with a broad market yield. Truth be told, you’re not just being average. Study after study of index fund (passive) results show that over time they outperform managed (active) funds. In short, the odds that you’ll do better in an actively managed domestic fund (versus an index fund) are about 1 in 20.


Henry David Thoreau, American philosopher, poet, and environmental scientist summed it up in a rather poetic manner:

Our life is frittered away by detail. Simplify, simplify.

Quote, Unquote

Now, enough with the quotes. I’m no expert like the remarkable folks I’ve quoted, but I know what works for me. And maybe, just maybe, we simple folks know as much about what really works in the financial world as those complicating Wazoos.


OK - just one more quote to round things out:

Simplicity is one of the greatest virtues when managing a portfolio…and one of the most woefully underrated.

Christine Benz knows of what she speaks.

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