Why simplicity ?
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Re: Why simplicity ?
In reality, a 4 or 5 fund portfolio can be rather simple.
Simplicity should not be the tail that wags the investment dog.
“Everything should be made as simple as possible, but no simpler.” - Albert Einstein
Choose your strategy, then do it as simply as possible. But don't give up diversification or pay significantly more for it.
Simplicity should not be the tail that wags the investment dog.
“Everything should be made as simple as possible, but no simpler.” - Albert Einstein
Choose your strategy, then do it as simply as possible. But don't give up diversification or pay significantly more for it.
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Re: Why simplicity ?
Because John Bogle suggested it. The Epilogue of “Bogle on Mutual Funds: New Perspectives for the Intelligent Investor” contains Twelve Pillars of Wisdom. The second one is
When all else fails, fall back on simplicity. If you have a major investment decision to make, there are an infinite number of solutions that would be worse than this one: commit, over a period of a few years, half of your assets to a stock index fund and half to a bond index fund. Ignore interim fluctuations in their net asset values. Hold your positions for as long as you live, subject only to infrequent and marginal adjustments as your circumstances change. Occam's razor—a thesis set forth 600 years ago and often affirmed by experience since then—should encourage you: when there are multiple solutions to a problem, choose the simplest one.
- abuss368
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Re: Why simplicity ?
Love this advice. Investors would be wise to follow.Ferdinand2014 wrote: ↑Wed May 05, 2021 11:12 pmBehavior. The more moving parts the more behavioral errors.Astones wrote: ↑Wed May 05, 2021 10:38 pm I'm kind of new here, I kept this question for myself as long as I resisted, but I've seen this concept coming up so frequently that at this point I need to ask.
Why do BHs make of SIMPLICITY such a big deal ?
"I could use 4 ETFs but for simplicity I just use one".
ok but why?
Most of us love spending time discussing investment topics anyway, what do you have to gain in saving one hour per year in rebalancing a >3 funds portfolio, if you believe it to be optimal?
I understand the wisdom behind low cost, patience, diversification and perseverance, but simplicity doesn't sound equally obvious to me.
Tony
John C. Bogle: “Simplicity is the master key to financial success."
Re: Why simplicity ?
I think we would all agree that complexity for complexity sake is nonsense. If investing is a hobby, then feel free to make it complicated...just don’t blow up. That said, most people that visit the forum aren’t interested in becoming the next livesoft and racking up tens of thousands of posts. They just want help putting together a plan that will achieve their goals so that they can move on to more enjoyable things in life. Simple is the best recipe for that situation.Astones wrote: ↑Wed May 05, 2021 10:38 pm I'm kind of new here, I kept this question for myself as long as I resisted, but I've seen this concept coming up so frequently that at this point I need to ask.
Why do BHs make of SIMPLICITY such a big deal ?
"I could use 4 ETFs but for simplicity I just use one".
ok but why?
Most of us love spending time discussing investment topics anyway, what do you have to gain in saving one hour per year in rebalancing a >3 funds portfolio, if you believe it to be optimal?
I understand the wisdom behind low cost, patience, diversification and perseverance, but simplicity doesn't sound equally obvious to me.
I can also personally attest that complexity doesn’t always (or often?) beat simplicity. For instance, the performance of my portfolio over the last decade lagged the performance of the Vanguard TDF closest to my expected retirement year. Ouch!
Last edited by Horton on Thu May 06, 2021 7:54 pm, edited 1 time in total.
80% global equities (faith-based tilt) + 20% TIPS (LDI)
- abuss368
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Re: Why simplicity ?
Remember Jack Bogle’s excellent advice: “Simplicity is the master key to financial success.”Astones wrote: ↑Wed May 05, 2021 10:38 pm I'm kind of new here, I kept this question for myself as long as I resisted, but I've seen this concept coming up so frequently that at this point I need to ask.
Why do BHs make of SIMPLICITY such a big deal ?
"I could use 4 ETFs but for simplicity I just use one".
ok but why?
Most of us love spending time discussing investment topics anyway, what do you have to gain in saving one hour per year in rebalancing a >3 funds portfolio, if you believe it to be optimal?
I understand the wisdom behind low cost, patience, diversification and perseverance, but simplicity doesn't sound equally obvious to me.
A one or two fund portfolio does just that. No need for the additional cost and complexity of a 4 - 5 fund portfolio.
Best.
Tony
John C. Bogle: “Simplicity is the master key to financial success."
Re: Why simplicity ?
Simplicity improves behavior for many and becomes especially important in elder years with potential cognitive decline.
Re: Why simplicity ?
If one has cognitive decline issues, maybe a trusted financial advisor is the way to go.
Personally, I'd hate to enter an operating room on a gurney and find that it looks "extremely simple".
Personally, I'd hate to enter an operating room on a gurney and find that it looks "extremely simple".
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'Hyper-Helpers'
Bogleheads:
A friend of mine sent me this:
Taylor
A friend of mine sent me this:
Best wishes."Indeed, you start to realize that much of the investment world is engaged in fruitless nonsense. Wall Street economists and market strategists pontificate about macroeconomic headwinds and tailwinds that nobody can reliably or consistently predict. Media pundits muse about the significance of short-term price fluctuations that are random and meaningless. Highly intelligent analysts at brokerage firms squander their time calculating next quarter's corporate earnings to the exact penny - an absurd guessing game that's irrelevant to successful long-term investors.
Not to be outdone, academics teach complicated mathematical formulas and speak in a private code about Sharpe ratios, Sortino ratios, alpha, beta, the Modigliani-Modigliani measure, and other arcane concepts that lend an air of scientific exactitude to the messiness of the markets. Meanwhile, investment consultants harness these highfalutin notions to convince clients that their portfolios need frequent, subtle fine-tuning. Buffett has derided these high-priced peddlers of complexity as 'hyper-helpers' whose 'advice is often delivered in esoteric gibberish.'" - William Green, Richer, Wiser, Happier: How the World's Greatest Investors Win in Markets and Life, page 122.
Taylor
Jack Bogle's Words of Wisdom: "In the stock market the more elaborate and abstruse the mathematics the more uncertain and speculative are the conclusions we draw therefrom."
"Simplicity is the master key to financial success." -- Jack Bogle
Re: Why simplicity ?
I mean, for me, it isn't just finances. I strive for simplicity in a lot of areas in my life. Perhaps even most.
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Re: Why simplicity ?
This is huge and I talk about it all the time! Plus I may get to the age and simply hire Vanguard!
Tony
John C. Bogle: “Simplicity is the master key to financial success."
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Re: 'Hyper-Helpers'
Love that Taylor! I would also add at substantial costs to investors.Taylor Larimore wrote: ↑Thu May 06, 2021 8:36 pm Bogleheads:
A friend of mine sent me this:Best wishes."Indeed, you start to realize that much of the investment world is engaged in fruitless nonsense. Wall Street economists and market strategists pontificate about macroeconomic headwinds and tailwinds that nobody can reliably or consistently predict. Media pundits muse about the significance of short-term price fluctuations that are random and meaningless. Highly intelligent analysts at brokerage firms squander their time calculating next quarter's corporate earnings to the exact penny - an absurd guessing game that's irrelevant to successful long-term investors.
Not to be outdone, academics teach complicated mathematical formulas and speak in a private code about Sharpe ratios, Sortino ratios, alpha, beta, the Modigliani-Modigliani measure, and other arcane concepts that lend an air of scientific exactitude to the messiness of the markets. Meanwhile, investment consultants harness these highfalutin notions to convince clients that their portfolios need frequent, subtle fine-tuning. Buffett has derided these high-priced peddlers of complexity as 'hyper-helpers' whose 'advice is often delivered in esoteric gibberish.'" - William Green, Richer, Wiser, Happier: How the World's Greatest Investors Win in Markets and Life, page 122.
TaylorJack Bogle's Words of Wisdom: "In the stock market the more elaborate and abstruse the mathematics the more uncertain and speculative are the conclusions we draw therefrom."
Tony
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Why simplicity ?
As someone who has over 20 mutual funds or etf's, I can bear witness that simplicity is a good thing for the overwhelming majority of investors. Instead of focusing on adding investments, it is better to focus on your asset allocation and your personal goals. 90% of your risk and returns will more than likely be attributed to your asset allocation. Target date funds, life strategy funds, or the boglehead 3 fund portfolio is the best choice for most investors. My complex 20 funds that I invest in won't outperform what I recommend earlier by no more than 0.5% annualized, and their is a good chance that I will underperform by 0.5% annualized. 0.5% will more than likely not have any impact on me or you accomplishing our goals. For most investors, keeping it simple is the right route to go.
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Re: Why simplicity ?
Is the rebalancing a challenge with 20 mutual funds?averagedude wrote: ↑Thu May 06, 2021 9:01 pm As someone who has over 20 mutual funds or etf's, I can bear witness that simplicity is a good thing for the overwhelming majority of investors. Instead of focusing on adding investments, it is better to focus on your asset allocation and your personal goals. 90% of your risk and returns will more than likely be attributed to your asset allocation. Target date funds, life strategy funds, or the boglehead 3 fund portfolio is the best choice for most investors. My complex 20 funds that I invest in won't outperform what I recommend earlier by no more than 0.5% annualized, and their is a good chance that I will underperform by 0.5% annualized. 0.5% will more than likely not have any impact on me or you accomplishing our goals. For most investors, keeping it simple is the right route to go.
Tony
John C. Bogle: “Simplicity is the master key to financial success."
Re: Why simplicity ?
The idiot complicates the simple. The genious simplifies the complicated.
KISS & STC.
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Re: Why simplicity ?
I like that and need to remember that for future use!
Tony
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Why simplicity ?
To be fair, most of my reasons for having 20 plus funds is my desire to have a mix of market capitalization, style, regions, durations, credit risks, and also having multiple 401k and IRA accounts with different investment options. Some of this is just overlap between admiral, institutional, and etf's. Rebalancing is a challenge because I tend to tinker and sometimes I change my AA (in small increments) due to how the investment winds are blowing. Most of the time I am wrong, which is the reason why I recommend that most investors keep it simple. The added benefit of keeping it simple and having it automated is that you never need to take advice from anybody, no need to listen to financial news, and you can sleep without wondering what Mr. Market did yesterday.abuss368 wrote: ↑Thu May 06, 2021 9:06 pmIs the rebalancing a challenge with 20 mutual funds?averagedude wrote: ↑Thu May 06, 2021 9:01 pm As someone who has over 20 mutual funds or etf's, I can bear witness that simplicity is a good thing for the overwhelming majority of investors. Instead of focusing on adding investments, it is better to focus on your asset allocation and your personal goals. 90% of your risk and returns will more than likely be attributed to your asset allocation. Target date funds, life strategy funds, or the boglehead 3 fund portfolio is the best choice for most investors. My complex 20 funds that I invest in won't outperform what I recommend earlier by no more than 0.5% annualized, and their is a good chance that I will underperform by 0.5% annualized. 0.5% will more than likely not have any impact on me or you accomplishing our goals. For most investors, keeping it simple is the right route to go.
Tony
Re: Why simplicity ?
It’s not really a big deal for me, I just think that I simply don’t know enough to get more complicated/sophisticated.Astones wrote: ↑Wed May 05, 2021 10:38 pm ...
Why do BHs make of SIMPLICITY such a big deal ?
"I could use 4 ETFs but for simplicity I just use one".
ok but why?
Most of us love spending time discussing investment topics anyway, what do you have to gain in saving one hour per year in rebalancing a >3 funds portfolio, if you believe it to be optimal?
I understand the wisdom behind low cost, patience, diversification and perseverance, but simplicity doesn't sound equally obvious to me.
John C. Bogle: "Never confuse genius with luck and a bull market".