I recently read the following quote from Richard Branson: “Complexity is your enemy. Any fool can make something complicated. It is hard to keep things simple.”
I would guess this statement has meaning to more than a few of you. As an advisor, I frequently seek ways to make the process of understanding investing easy to understand. It can be challenging to do this while staying well within the guidelines of compliance issues.
Despite technology that is supposed to make our life easier, the opposite is often true.
The same social media that helps us stay in contact with our friends can draw us into conflict with the people we want to keep in touch with, as well as people we don’t even know. Obviously, limiting time spent on social media can reduce life’s complications. If you must enter the fray by adding a comment to a post, consider at least waiting a day before doing so.
Perfection, or instead seeking perfection, creates complications too. Have you ever been to a party or event where the host is so concerned with everything being perfect they don’t enjoy their own event? The only person who would even notice something “not quite right” is the fretting host. Sometimes things are good enough.
It seems like we have a complexity bias.
There is a school of thought that when faced with two competing solutions, we often choose the more complex of the two. This is nothing new, evidenced by this saying by Confucius: “Life is really simple, but we insist on making it complicated.”
I frequently comment on advertisements on T.V. or radio because of the language used. Ads are often for products that offer complicated solutions to simple problems. I assume simple doesn’t sell, and let’s face it, simple isn’t cool. There are several products advertised that are simple but have been repackaged to add costs. To hear the T.V. or radio (infomercial) host tell it, only a few people on the planet have the expertise to manufacture precisely what you need, and this, unfortunately, can apply to financial products too.
Simple does not mean easy.
Here are three simple investing tips:
- Establish an asset allocation that is suited to your tolerance for risk. This is where investors frequently make things complicated. While everyone has a different definition of risk, a skilled advisor can help you define your risk. I once had someone tell me they wanted SAFE, SAFE, SAFE. That, to me, meant CDs and short-term bonds. What I soon learned from this investor is they meant something like Walmart because “the parking lot is always full.” It took time to really define that individual’s tolerance.
- Stick to the plan. Once your plan is established, don’t be easily moved away from it because of a “new idea.” It can be like sitting in traffic, thinking the lane next to you is moving faster. As soon as you change lanes, the cars behind you pass you. Understand what you own and why.
- Make sure to consider the tax efficiency of your investments. This is another simple (not easy) way to improve your investment return. Keep your silent partner (IRS) legally out of your pocket when possible. Know the difference between tax-free and tax-deferred. At the same time, avoid establishing a big tax later to save a little one now.
Having a plan that you understand is something that is as important to us as it is to you. I, along with my associates, enjoy conversations with people on these issues. We are available to meet remotely or in person.
Give us a call.