When less is more
With the world having been through a tumultuous decade through the global financial crisis & beyond, I’ve sometimes wondered whether partial ignorance was bliss as many of the gruesome details of the subprime crisis subsequently came to light (the books always seem to follow afterwards).
After all, had we known of all the potential perils facing the world’s major investment banks & financial institutions – let alone countries and government debt – many of us may have been too fearful to invest in anything ever again!
Yet, for all the turmoil, those buying quality assets at sensible prices have enjoyed another decade of strong returns.
Keep it simple stupid (KISS)
The legendary Peter Lynch of Fidelity once said that he liked to invest in businesses that even an idiot could run, because ‘sooner or later one will’.
There’s a great deal to be said for this as a philosophy for both business & investment, for the more complexity & moving parts there are to a strategy, the greater the chance of something going wrong.
There’s no need for a business or investment plan to be too clever, or to make processes harder than they need to be.
6 ways to KISS
Philosopher Henry David Thoreau said: ‘Simplify, simplify, simplify’ – so in that spirit here are 6 easy ways to keep your financial plan simple:
(i) Set goals – while plans tend to change over time, it helps to have an end goal to work towards so that you can begin with the end in mind;
(ii) A plan for all seasons – all asset classes will come in & out of favour, and experience summer & winter seasons – make a plan to invest through both the good & bad times;
(iii) Diversify – don’t have all your eggs in one basket, and if you aren’t an expert in money management & fundamental analysis use products to help you diversify efficiently;
(iv) Invest often – buying investments regularly helps to average or smooth out your risk;
(v) Don’t rely on timing – it makes sense to buy low and sell high, of course, but try not to be too reliant on market timing unless this is your forte; and
(vi) Manage risks & think long term – invest don’t speculate; taking a long term view can help.
Naturally we could go into more depth here, but that would probably contradict the point of the article!
Apple’s co-founder Steve Jobs noted that it takes time & effort to get your thinking clean and clear enough to keep things simple, but the effort to do so is well worth it, because once you get there you can move mountains.