Is it better to have fewer investment choices?

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sillysaver
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Is it better to have fewer investment choices?

Post by sillysaver » Sat Oct 06, 2018 2:48 pm

I've been thinking about moving all my accounts to Vanguard and just investing directly in the index funds, despite their disadvantages relative to ETF's.

The reason is that I feel by limiting the number of investment options, as well as the ease with which I might trade, I prevent myself from making stupid mistakes.

When I start researching things like factor funds, and brokers that allow you to build a custom portfolio using a vast array of ETF's for no commissions, I start to feel a little excited, like I might when tinkering with a new programming language or playing a video game. I remember some advice awhile back that investing should not be exciting, so I recognize that as a red flag.

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Re: Is it better to have fewer investment choices?

Post by cadreamer2015 » Sat Oct 06, 2018 2:55 pm

There is a fair amount of research in behavioral economics that agrees with your premise. In 401k plans with “too many” investment choices, a large number of employees were investing in either all money market or all company stock - long run retirement investment choices BogleHeads would generally recommend against. But those are general conclusions about the average investor. What’s more important is what works for you. Only you can determine that.

Even with a plain vanilla Vanguard account you will have far more investment choices than most BogleHeads would think are necessary.
De gustibus non est disputandum

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Rowan Oak
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Re: Is it better to have fewer investment choices?

Post by Rowan Oak » Sat Oct 06, 2018 3:05 pm

sillysaver wrote:
Sat Oct 06, 2018 2:48 pm
I've been thinking about moving all my accounts to Vanguard and just investing directly in the index funds, despite their disadvantages relative to ETF's.

The reason is that I feel by limiting the number of investment options, as well as the ease with which I might trade, I prevent myself from making stupid mistakes.

When I start researching things like factor funds, and brokers that allow you to build a custom portfolio using a vast array of ETF's for no commissions, I start to feel a little excited, like I might when tinkering with a new programming language or playing a video game. I remember some advice awhile back that investing should not be exciting, so I recognize that as a red flag.
This page at Vanguard is a great example of all you really need to build a fully diversified, low cost portfolio. It's a very short list.
https://investor.vanguard.com/etf/investment-options

note: from the ETF profile page you can click the link to the traditional Index Fund.
Last edited by Rowan Oak on Sun Oct 14, 2018 7:00 pm, edited 1 time in total.
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger

delamer
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Re: Is it better to have fewer investment choices?

Post by delamer » Sat Oct 06, 2018 3:55 pm

If you think the move will help you avoid stupid mistakes, then make the change.

But I am curious as to why you think Vanguard will give you fewer investment choices?

I have a taxable brokerage account with Vanguard. The account has held Vanguard mutual funds, Vanguard ETFs, non-Vanguard mutual funds, non-Vanguard ETFs, individual stocks, and individual bonds.

Buying and selling investments takes about 4 mouse clicks.

KJVanguard
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Re: Is it better to have fewer investment choices?

Post by KJVanguard » Sat Oct 06, 2018 4:19 pm

Most 401(k) plans seem to think so. They tend to offer employees a limited number of broadly diversified options to select from. It would appear they are intentionally trying to prevent investors from hurting themselves too much.

Of course, to protect the ignorant masses from themselves they also must limit the choices of rather sophisticated investors like many who are reading this board.

sillysaver
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Re: Is it better to have fewer investment choices?

Post by sillysaver » Sat Oct 06, 2018 4:33 pm

delamer wrote:
Sat Oct 06, 2018 3:55 pm
If you think the move will help you avoid stupid mistakes, then make the change.

But I am curious as to why you think Vanguard will give you fewer investment choices?

I have a taxable brokerage account with Vanguard. The account has held Vanguard mutual funds, Vanguard ETFs, non-Vanguard mutual funds, non-Vanguard ETFs, individual stocks, and individual bonds.

Buying and selling investments takes about 4 mouse clicks.
Ah, I should have been more specific. I like Vanguard funds and would probably use the total world stock market index along with perhaps a bond fund. Opening an account with Vanguard would give me direct access to their fund offerings. Is it possible to just own the funds and not have a "brokerage" account? Also, the limited liquidity of the funds appeals to me, as there shouldn't be any reason to execute intraday trades. Basically I am just saying I might dispense with unnecessary "features" and implement an extremely simple 2-fund portfolio.

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Re: Is it better to have fewer investment choices?

Post by 22twain » Sat Oct 06, 2018 5:00 pm

sillysaver wrote:
Sat Oct 06, 2018 4:33 pm
Is it possible to just own the funds and not have a "brokerage" account?
You can just own traditional mutual funds at Vanguard, but you have to do in a "brokerage" account, at least if you're a new customer.

As I understand it from reading posts here (I'm not at Vanguard myself), Vanguard formerly had separate software "platforms": one for traditional mutual funds and another one for ETFs and individual stocks. Now they have a single system that can accommodate both sets of investments. (Actually for now it's a third system because some legacy customers still use the old platforms.) People call it a "brokerage" account even though you can own traditional mutual funds in it.
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Re: Is it better to have fewer investment choices?

Post by tibbitts » Sat Oct 06, 2018 5:24 pm

sillysaver wrote:
Sat Oct 06, 2018 4:33 pm
delamer wrote:
Sat Oct 06, 2018 3:55 pm
If you think the move will help you avoid stupid mistakes, then make the change.

But I am curious as to why you think Vanguard will give you fewer investment choices?

I have a taxable brokerage account with Vanguard. The account has held Vanguard mutual funds, Vanguard ETFs, non-Vanguard mutual funds, non-Vanguard ETFs, individual stocks, and individual bonds.

Buying and selling investments takes about 4 mouse clicks.
Ah, I should have been more specific. I like Vanguard funds and would probably use the total world stock market index along with perhaps a bond fund. Opening an account with Vanguard would give me direct access to their fund offerings. Is it possible to just own the funds and not have a "brokerage" account? Also, the limited liquidity of the funds appeals to me, as there shouldn't be any reason to execute intraday trades. Basically I am just saying I might dispense with unnecessary "features" and implement an extremely simple 2-fund portfolio.
It's been a long time since most of us could open a mutual fund account, but from stories here on Bogleheads, I believe that rule won't hold if you have enough money. Not the kind of money ordinary people have.

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watchnerd
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Re: Is it better to have fewer investment choices?

Post by watchnerd » Sat Oct 06, 2018 6:11 pm

sillysaver wrote:
Sat Oct 06, 2018 4:33 pm

Ah, I should have been more specific. I like Vanguard funds and would probably use the total world stock market index along with perhaps a bond fund.
That's pretty much what I do, although I separately own the world stock market index in it's two constituent pieces (total US and total ex-US) because the ER is cheaper; if VTWSX (total world) came in Admiral shares with an ER as low as the ETFs, I'd probably stop splitting.

For a bond fund, in my tax-sheltered accounts, I own a single total treasuries market fund.

That's it. 3 funds, could easily be 2.

Remember that >95% of returns are determined by your asset allocation.
Tax Sheltered: 35% US Stock | 35% ex-US Stock | 30% TTM || Taxable: 35% US Stock | 35% ex-US Stock | 15% TTM | 15% Munis

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arcticpineapplecorp.
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Re: Is it better to have fewer investment choices?

Post by arcticpineapplecorp. » Sat Oct 06, 2018 8:28 pm

The TSP offers just 5 separate funds (G,F,C,S,I) and different allocations to each in their version of target date funds (L 2020, L2030 and so on).

https://www.tsp.gov/InvestmentFunds/Fun ... index.html

If that's good enough for 2 million civilian federal employees, then what makes anyone think the private sector needs more funds than that?

https://fas.org/sgp/crs/misc/R43590.pdf
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

delamer
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Re: Is it better to have fewer investment choices?

Post by delamer » Sat Oct 06, 2018 9:01 pm

sillysaver wrote:
Sat Oct 06, 2018 4:33 pm
delamer wrote:
Sat Oct 06, 2018 3:55 pm
If you think the move will help you avoid stupid mistakes, then make the change.

But I am curious as to why you think Vanguard will give you fewer investment choices?

I have a taxable brokerage account with Vanguard. The account has held Vanguard mutual funds, Vanguard ETFs, non-Vanguard mutual funds, non-Vanguard ETFs, individual stocks, and individual bonds.

Buying and selling investments takes about 4 mouse clicks.
Ah, I should have been more specific. I like Vanguard funds and would probably use the total world stock market index along with perhaps a bond fund. Opening an account with Vanguard would give me direct access to their fund offerings. Is it possible to just own the funds and not have a "brokerage" account? Also, the limited liquidity of the funds appeals to me, as there shouldn't be any reason to execute intraday trades. Basically I am just saying I might dispense with unnecessary "features" and implement an extremely simple 2-fund portfolio.
I believe that all new accounts are set up as brokerage accounts.

But you are correct that if you just buy mutual funds in the brokerage account, you can’t do intraday trading.

shess
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Re: Is it better to have fewer investment choices?

Post by shess » Sat Oct 06, 2018 10:04 pm

sillysaver wrote:
Sat Oct 06, 2018 2:48 pm
I've been thinking about moving all my accounts to Vanguard and just investing directly in the index funds, despite their disadvantages relative to ETF's.

The reason is that I feel by limiting the number of investment options, as well as the ease with which I might trade, I prevent myself from making stupid mistakes.

When I start researching things like factor funds, and brokers that allow you to build a custom portfolio using a vast array of ETF's for no commissions, I start to feel a little excited, like I might when tinkering with a new programming language or playing a video game. I remember some advice awhile back that investing should not be exciting, so I recognize that as a red flag.
In the 90's and early 00's, I was a pretty hands-on investor. Now I realize I was a closet indexer, but at the time I was busy busy busy, following the news, making the adjustments, monitoring the returns, etc. Switching to a 3-fund/lazy portfolio has really improved my life, I feel like my portfolio does just as well, but my stress is much much less. In fact, I ended up having to set myself rules to prevent me from being _too_ lazy about it. I'm comfortable just letting things ride, now, where before I was perpetually concerned about whether I needed to make changes.

So I think it's plausible that making a change of this nature can be helpful. BUT, be careful not to confuse external limits with good decision making. Vanguard has more than enough options for you to mess yourself up, daily mutual-fund trading is still a bad idea. IMHO, the Admiral shares of Vanguard index funds really have no disadvantages relative to ETFs. Really, I think the main advantage with Vanguard is that they don't send you an email every couple weeks talking about the wonderful new program they have with an opening just for you (please call and set up an appointment at your earliest convenience). That kind of thing keeps you in doubt, even if you're doing everything right.

I think the part which really helped me basically came down to writing down my asset allocation, how often was reasonable to consider rebalancing, and how tightly I wanted to match my asset allocation when rebalancing. Having that stuff written out freed me from having to always keep thinking about it on a daily or weekly or monthly basis, which in turn freed me from the compulsion to question things all the time.

[If you're having troubles convincing yourself, you might try reading a Bernstein book, like Four Pillars or Intelligent Asset Allocator. I had read a lot of books before that, but somehow those two finally reached me.]

fennewaldaj
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Re: Is it better to have fewer investment choices?

Post by fennewaldaj » Sat Oct 06, 2018 10:54 pm

KJVanguard wrote:
Sat Oct 06, 2018 4:19 pm
Most 401(k) plans seem to think so. They tend to offer employees a limited number of broadly diversified options to select from. It would appear they are intentionally trying to prevent investors from hurting themselves too much.

Of course, to protect the ignorant masses from themselves they also must limit the choices of rather sophisticated investors like many who are reading this board.
I think the limited options but with a brokeragelink style option is probably the best way to do things. That is how my 403b/401a/457 with fidelity are set up. It keeps the average investor from doing something dumb while still giving others options.

KJVanguard
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Re: Is it better to have fewer investment choices?

Post by KJVanguard » Sun Oct 14, 2018 12:27 pm

fennewaldaj wrote:
Sat Oct 06, 2018 10:54 pm
I think the limited options but with a brokeragelink style option is probably the best way to do things. That is how my 403b/401a/457 with fidelity are set up. It keeps the average investor from doing something dumb while still giving others options.
That would seem best. One certainly has to protect the average investor who knows nothing and doesn't care to learn from hurting themselves too badly, but it would still be nice to give freedom to those who know what they are doing and can thus safely operate DGS, a small EM dividend fund that could be owned by sophisticated folks who read this forum.

Living Free
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Re: Is it better to have fewer investment choices?

Post by Living Free » Sun Oct 14, 2018 12:42 pm

sillysaver wrote:
Sat Oct 06, 2018 2:48 pm
I've been thinking about moving all my accounts to Vanguard and just investing directly in the index funds, despite their disadvantages relative to ETF's.
Do you mean directly into broad market index mutual funds or exchange traded index funds instead of more focused/less diverse exchange traded funds?

One can invest in broad market (such as total US stock market, total US bond market, total international stock market) index funds through either mutual funds or exchange traded funds at vanguard.

sillysaver
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Re: Is it better to have fewer investment choices?

Post by sillysaver » Sun Oct 14, 2018 6:33 pm

My main point was that I only need a few broad-based index investments, whether that's funds or ETF's.

I was leaning towards funds as a vehicle for automatic investments (buying dollar amounts, with fractional shares), plus as a long-term investor I don't need intraday liquidity. On the other hand, there are advantages to ETF's because of their liquidity. I would prefer to be able to trade during the day to do things like tax-loss harvesting, but it's not that important.

2015
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Re: Is it better to have fewer investment choices?

Post by 2015 » Sun Oct 14, 2018 7:35 pm

sillysaver wrote:
Sat Oct 06, 2018 2:48 pm
...

When I start researching things like factor funds, and brokers that allow you to build a custom portfolio using a vast array of ETF's for no commissions, I start to feel a little excited, like I might when tinkering with a new programming language or playing a video game. I remember some advice awhile back that investing should not be exciting, so I recognize that as a red flag.
You're right. That's a red flag. But at least you're not alone. Lots of overconfident individuals seem to treat investing like it's learning a new programming language or playing a video game. There's lots of ego involved, and the financial industry knows just how to pull all the puppet's strings.

Simplicity keeps you from mimicking all the stupid stuff that others are doing while they're trying to be brilliant. Munger/Buffett have gone on record saying one of the keys to their success is they seriously avoid doing stupid stuff.

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Re: Is it better to have fewer investment choices?

Post by Taylor Larimore » Sun Oct 14, 2018 8:07 pm

sillysaver wrote:
Sat Oct 06, 2018 2:48 pm
I've been thinking about moving all my accounts to Vanguard and just investing directly in the index funds, despite their disadvantages relative to ETF's.
sillysaver:

What are the "disadvantages relative to ETFs?"

Vanguard mutual funds and ETFs have almost identical returns.

ETFs "ease of trading" is of no benefit for stay-the-course investors.

If you purchase the Vanguard mutual fund you can later exchange without cost to it's comparable ETF. However, you cannot later exchange to the mutual fund if you start-out with the ETF.

I have held Vanguard mutual funds since 1986. I have no desire to exchange into a fund's comparable ETF.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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nedsaid
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Re: Is it better to have fewer investment choices?

Post by nedsaid » Sun Oct 14, 2018 8:14 pm

I am rolling over a Variable Annuity to Fidelity. I will use Taylor's 3 fund portfolio: US Total Stock Market Index, an International Stock Index, and a US Bond Index. The simple portfolios work just fine.
A fool and his money are good for business.

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Rowan Oak
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Re: Is it better to have fewer investment choices?

Post by Rowan Oak » Sun Oct 14, 2018 8:25 pm

Vanguard has a fairly comprehensive page explaining the differences between their ETFs and mutual funds.

ETFs vs. mutual funds: A comparison
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger

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ruralavalon
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Re: Is it better to have fewer investment choices?

Post by ruralavalon » Mon Oct 15, 2018 11:13 am

sillysaver wrote:
Sat Oct 06, 2018 2:48 pm
I've been thinking about moving all my accounts to Vanguard and just investing directly in the index funds, despite their disadvantages relative to ETF's.

The reason is that I feel by limiting the number of investment options, as well as the ease with which I might trade, I prevent myself from making stupid mistakes.

When I start researching things like factor funds, and brokers that allow you to build a custom portfolio using a vast array of ETF's for no commissions, I start to feel a little excited, like I might when tinkering with a new programming language or playing a video game. I remember some advice awhile back that investing should not be exciting, so I recognize that as a red flag.
Using just a few broadly diversified mutual funds is a good idea in my opinion. It helps avoid tinkering, keep investing boring.

In my opinion traditional mutual funds have advantages over ETFs. With traditional mutual funds you can buy and sell fractional shares, it is easy to set up automatic investment of new contributions, and easy to set up automatic reinvestment of dividends and gains.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: Is it better to have fewer investment choices?

Post by texasdiver » Mon Oct 15, 2018 3:47 pm

arcticpineapplecorp. wrote:
Sat Oct 06, 2018 8:28 pm
The TSP offers just 5 separate funds (G,F,C,S,I) and different allocations to each in their version of target date funds (L 2020, L2030 and so on).

https://www.tsp.gov/InvestmentFunds/Fun ... index.html

If that's good enough for 2 million civilian federal employees, then what makes anyone think the private sector needs more funds than that?

https://fas.org/sgp/crs/misc/R43590.pdf
When I was younger I had near equal amounts in my TSP and in traditional IRAs opened before I became I federal employee. At the time (late 90s) I really chafed at the lack of investment opportunities in the TSP and had my IRAs spread out into all kinds of aggressive Janus funds which did great until 2000 hit. I was one of those who would go on TSP online forums and rant against the lack of aggressive investment choices.

In the end, the limited investment choices in the TSP meant that my TSP account survived the 2000 downturn MUCH MUCH better than my traditional IRAs. The fact that I couldn't load up my TSP account with aggressive tech-heavy funds saved my butt and probably means that I have a substantially larger portfolio today.

Today I look back 30 years and am frankly amazed at how good and far-sighted the designers of the TSP really were.
Last edited by texasdiver on Mon Oct 15, 2018 3:51 pm, edited 3 times in total.

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Re: Is it better to have fewer investment choices?

Post by White Coat Investor » Mon Oct 15, 2018 3:48 pm

sillysaver wrote:
Sat Oct 06, 2018 2:48 pm
I've been thinking about moving all my accounts to Vanguard and just investing directly in the index funds, despite their disadvantages relative to ETF's.

The reason is that I feel by limiting the number of investment options, as well as the ease with which I might trade, I prevent myself from making stupid mistakes.

When I start researching things like factor funds, and brokers that allow you to build a custom portfolio using a vast array of ETF's for no commissions, I start to feel a little excited, like I might when tinkering with a new programming language or playing a video game. I remember some advice awhile back that investing should not be exciting, so I recognize that as a red flag.
I prefer fewer options except when I need TLHing exchange partners. Then I like having a few more. For example, this month I've gone from TISM to FTSE Ex-US to Developed/Emerging to Europe/Pacific/The other emerging fund. I don't know what I'm going to do if there's another big drop in the next 10 days before I can go back to TISM.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

sillysaver
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Re: Is it better to have fewer investment choices?

Post by sillysaver » Mon Oct 15, 2018 4:28 pm

texasdiver wrote:
Mon Oct 15, 2018 3:47 pm
arcticpineapplecorp. wrote:
Sat Oct 06, 2018 8:28 pm
The TSP offers just 5 separate funds (G,F,C,S,I) and different allocations to each in their version of target date funds (L 2020, L2030 and so on).

https://www.tsp.gov/InvestmentFunds/Fun ... index.html

If that's good enough for 2 million civilian federal employees, then what makes anyone think the private sector needs more funds than that?

https://fas.org/sgp/crs/misc/R43590.pdf
When I was younger I had near equal amounts in my TSP and in traditional IRAs opened before I became I federal employee. At the time (late 90s) I really chafed at the lack of investment opportunities in the TSP and had my IRAs spread out into all kinds of aggressive Janus funds which did great until 2000 hit. I was one of those who would go on TSP online forums and rant against the lack of aggressive investment choices.

In the end, the limited investment choices in the TSP meant that my TSP account survived the 2000 downturn MUCH MUCH better than my traditional IRAs. The fact that I couldn't load up my TSP account with aggressive tech-heavy funds saved my butt and probably means that I have a substantially larger portfolio today.

Today I look back 30 years and am frankly amazed at how good and far-sighted the designers of the TSP really were.
This reminds me of when I started a job relatively fresh out of university, I asked the 401k committee why we didn't have any "focused" funds. The options seemed too bland not aggressive enough. Looking back, we had more choices than we needed.

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