Why simplicity ?
Why simplicity ?
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.
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.
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Re: Why simplicity ?
I invest using the standard 3 fund portfolio. Sure i could tilt to small cap value, or some other factor, but there is nothing to say that those factors will out perform going into the future.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 strive to simplicity, due to my spouse not being a finance nerd, and when i die, i need it simple enough that she can spend 15 minutes, once a year following instructions and get it right.
i would hold only 2 funds, a total world stock fund and a us bond fund, if i was ok with paying extra taxes.
Earned 43 (and counting) credit hours of financial planning related education from a regionally accredited university, but I am not your advisor.
Re: Why simplicity ?
Not much is as clear cut and obvious as many dogmatic bogleheads want to believe. I think it can be educational, fun, and at times useful to debate topics and new investment ideas, both theoretical and practical -- even if I will likely never actually act on much, or any, of the topics.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.
However, as it relates to keeping things simple, here's my take. The fewer variables in the equation, the fewer decisions you have to make, the less you will be provoked to make moves, and ultimately the fewer chances you give yourself to mess up.
I say start from a baseline of one equity fund like VT. Now, what are the reasons you would prefer more options? Is there functional reason to use more than one holding for all of your equity exposure? If you have sound logic and a gameplan to expand for whatever reason, I say go for it.
Re: Why simplicity ?
Things should be as simple as possible, but no simpler.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.
e.g. 3 fund works for many purposes. Covers the main asset classes. But for example if your tax situation wants you to own munis or treasuries in taxable, and total bond (or intermediate bond, or whatever) in an IRA, go to it. If you want some mix of TIPS and a bond fund, go to it. If you need two different index funds to TLH without hitting wash sales, sure.
I think many are against complexity because of the experience that advisors can encourage unnecessarily complex fund portfolios to justify their existence. Any fund you own should have a purpose. And owning funds that are very small percentages of your net worth is often just clutter, not moving the needle much. I'd also argue that lots of funds leads to tinkering. Finding the latest hot fund to add, etc. And that can lead to other bad behaviors. IMO of course.
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Re: Why simplicity ?
Simplicity is about reducing human error.
You can think of managing your finances as a process. A process is a series of steps designed to achieve a specific goal. Each step has an error rate, particularly if it is a human-driven step. If humans are involved, the error (what could go wrong) rate can be high.
You reduce the overall error rate by mistake-proofing steps, or better yet, eliminating unnecessary steps. Simple.
You can think of managing your finances as a process. A process is a series of steps designed to achieve a specific goal. Each step has an error rate, particularly if it is a human-driven step. If humans are involved, the error (what could go wrong) rate can be high.
You reduce the overall error rate by mistake-proofing steps, or better yet, eliminating unnecessary steps. Simple.
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Re: Why simplicity ?
I like simplicity too, and have worked towards it in recent years. Still have separate property accounts, joint accounts, trust accounts, different types of retirement accounts, HSAs, etc. Even if they all hold the same fund or two it ends up being more than you'd think.Soon2BXProgrammer wrote: ↑Wed May 05, 2021 10:47 pmI invest using the standard 3 fund portfolio. Sure i could tilt to small cap value, or some other factor, but there is nothing to say that those factors will out perform going into the future.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 strive to simplicity, due to my spouse not being a finance nerd, and when i die, i need it simple enough that she can spend 15 minutes, once a year following instructions and get it right.
i would hold only 2 funds, a total world stock fund and a us bond fund, if i was ok with paying extra taxes.
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Re: Why simplicity ?
Behavior. 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.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett
Re: Why simplicity ?
A simpler portfolio is generally easier to stay the course for most investors. That is why one fund is better than two and two is better than three funds (for me )
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)
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Re: Why simplicity ?
Because it's not complicated to pick a haystack of equities / bonds you want to hold long-term.
If you want to take more risk, do so with your funny money, not with your Boglehead portfolio.
If you want to take more risk, do so with your funny money, not with your Boglehead portfolio.
Re: Why simplicity ?
The fallacy is to think that complicated portfolio will be optimal. Optimal can only be achieved in hindsight. In the long run, the optimal way is aim for the average return of a globally diversified index fund.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.
In practice, simplicity often helps eliminate behavior mistakes.
Time is the ultimate currency.
Re: Why simplicity ?
Time is probably a factor, but I think the biggest factor is that more simple = more automated, and therefore less chance for we humans to screw it up. More complicated portfolios get handled more by necessity, and the greater number of "touch points" in a portfolio's lifespan will introduce more potential for sub-optimal decision-making or second-guessing.
That isn't a Boglehead specific take... just my $0.02.
That isn't a Boglehead specific take... just my $0.02.
This post is for entertainment or information only, and should not be construed as professional financial advice. |
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"Invest your money passively and your time actively" -Michael LeBoeuf
Re: Why simplicity ?
Excessively simple is possibly even worse than excessively complex.
Re: Why simplicity ?
In addition to all the behavioral factors, it's important to note that complexity will not always be free in all cases. Complex portfolios with complex withdrawal strategies can generate lots of tax records and filing complexity, which may cost both time and money to resolve, especially if that resolution is left to heirs or someone else.
I think there's also the issue of cognitive load. Many of us only have so much attention and energy we can devote to life in general, and for people who feel overloaded as is, adding one more fund may be a perfectly logical thing to do in isolation, but it may be the thing that causes them to forget to bump their savings rate, focus on work, be attentive at a child's birthday party, etc. I would argue that for most people just starting out with investing, their time and energy are much better spent learning fundamentals and figuring out ways to increase their savings rate than picking the optimal funds, so much so that I would almost bet that sticking to a TDF and spending the time they would spent researching funds to reduce monthly expenses instead would come out ahead almost every time. Obviously, those things aren't necessarily mutually exclusive, but not everyone is a finance nerd that reads Bogleheads posts for fun, and there may be better things they could be doing.
I think there's also the issue of cognitive load. Many of us only have so much attention and energy we can devote to life in general, and for people who feel overloaded as is, adding one more fund may be a perfectly logical thing to do in isolation, but it may be the thing that causes them to forget to bump their savings rate, focus on work, be attentive at a child's birthday party, etc. I would argue that for most people just starting out with investing, their time and energy are much better spent learning fundamentals and figuring out ways to increase their savings rate than picking the optimal funds, so much so that I would almost bet that sticking to a TDF and spending the time they would spent researching funds to reduce monthly expenses instead would come out ahead almost every time. Obviously, those things aren't necessarily mutually exclusive, but not everyone is a finance nerd that reads Bogleheads posts for fun, and there may be better things they could be doing.
Re: Why simplicity ?
+1H-Town wrote: ↑Thu May 06, 2021 12:35 amThe fallacy is to think that complicated portfolio will be optimal. Optimal can only be achieved in hindsight. In the long run, the optimal way is aim for the average return of a globally diversified index fund.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.
In practice, simplicity often helps eliminate behavior mistakes.
Re: Why simplicity ?
If someone can stay the course with a global index fund and (1) avoid bailing (2) avoid paying an advisor, that in it's own way is optimal. Interestingly - Bogleheads are more open to complexity on the bond side than the equity side.
Amateur Self-Taught Senior Macro Strategist
Re: Why simplicity ?
The usual cycle for anything in life is to start shallow, get in so deep that you end up being a pseudo-expert, realize how much you actually didn’t understand, and, finally, pare back to the essentials to achieve your goals.
It’s like the woodworker who has the shop with a hundred tools, but builds the most beautiful pieces of furniture using only 5 of them.
It’s like the woodworker who has the shop with a hundred tools, but builds the most beautiful pieces of furniture using only 5 of them.
Re: Why simplicity ?
For one something as small as 5% will probably not move your portfolio. I probably wouldn’t even consider anything that is less than 20% for that reason.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.
Re: Why simplicity ?
Bogleheads is around to educate everyday, normal investors. Have you ever seen some of the portfolio help threads? There's a common theme of too many funds, many of which are overlapping holdings, and not to mention cost too much. A simple, low cost portfolio is best for the average investor. Fine returns. Easy to comprehend. Likely to stick to it.
- dodecahedron
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Re: Why simplicity ?
Glad you asked the question. Good to get us explicitly articulating our reasoning.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?
I agree with what has been written above, particularly avoiding behavioral mistakes. Also, reducing stress, frustration, annoyances with glitches in customer service, transaction processing, etc.
For those of us who are older and facing mortality and the possibility that someone else may need to take over managing our finances due to incapacity, a compelling reason for simplicity is reducing the burdens on our eventual POAs, executors, and heirs down the road.
I have friends who were unexpectedly faced with dealing with tangled messes of complex portfolios and assets they did not understand (including exotic securities in foreign accounts) after a parent or other elderly relative suddenly had a stroke or otherwise became incapacitated. Navigating medical bills, prescriptions, insurance reimbursement, home health care aide hiring and supervision, etc. is bad enough without trying to make sense of a complex investment portfolio with multiple moving parts.
I would like to avoid imposing unnecessary burdens on my beloved successor decision makers.
And having experienced the death of several family members who died unexpectedly or were incapacitated unexpectedly at relatively young ages, I am acutely aware that we may or may not get any warning to "put our affairs in order" before someone else we love is thrust with the responsibility for managing everything.
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Re: Why simplicity ?
My own personal reasons:
1. Of a bunch of good portfolio options, it’s the easiest to implement with the available options in my workplace retirement plan. I could complicate by losing tax efficiency, but it’s not worth it to me.
2. I would, and do, want to tinker constantly. I know if I just complicate a little, tinker here and there, I’ll never stop. Two funds it is and ignore the noise.
The following are secondary benefits of being in a two fund:
1. I have 3 kids and a wife. I’m certain ,at death, that she can explain to whoever she hires for portfolio advice exactly what the plan is and should be. She personally has no interest in any of this.
2. I’ll never have to grit my teeth through tracking error, but through experience I know I can through value and growth outperformance of the SP500.
1. Of a bunch of good portfolio options, it’s the easiest to implement with the available options in my workplace retirement plan. I could complicate by losing tax efficiency, but it’s not worth it to me.
2. I would, and do, want to tinker constantly. I know if I just complicate a little, tinker here and there, I’ll never stop. Two funds it is and ignore the noise.
The following are secondary benefits of being in a two fund:
1. I have 3 kids and a wife. I’m certain ,at death, that she can explain to whoever she hires for portfolio advice exactly what the plan is and should be. She personally has no interest in any of this.
2. I’ll never have to grit my teeth through tracking error, but through experience I know I can through value and growth outperformance of the SP500.
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Re: Why simplicity ?
Well said.SevenBridgesRoad wrote: ↑Wed May 05, 2021 11:01 pm Simplicity is about reducing human error.
You can think of managing your finances as a process. A process is a series of steps designed to achieve a specific goal. Each step has an error rate, particularly if it is a human-driven step. If humans are involved, the error (what could go wrong) rate can be high.
You reduce the overall error rate by mistake-proofing steps, or better yet, eliminating unnecessary steps. Simple.
I would add that simplicity equals less time spent. Less time spent equals more time for other things. Time in this world is finite, as we age we want to spend less of it on things that really don't matter.
Edit - I'd also add that people's definition of simplicity is all over the place. So is their adherence to Boglehead principles. Some take it way beyond management of investments. For me, going from a bunch of managed funds to some managed funds and some index funds is all that I do. I'm not going to give up proven performance for a 3-fund portfolio.
Last edited by RickBoglehead on Thu May 06, 2021 7:30 am, edited 1 time in total.
Avid user of forums on variety of interests-financial, home brewing, F-150, EV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.
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Re: Why simplicity ?
OP- You’ve gotten a lot of good answers. You can also flip the question and ask why complexity?
Personally, I used to have all sorts of funds in my 401k with tiny allocations. I eventually realized that the tiny allocations were meaningless and encouraged too much tinkering.
Personally, I used to have all sorts of funds in my 401k with tiny allocations. I eventually realized that the tiny allocations were meaningless and encouraged too much tinkering.
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Re: Why simplicity ?
I think a lot of us are doing it for who we leave behind.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.
On a personal level many bogleheads on here has Vanguard and one credit union. I love the thought of that.
Last edited by iamblessed on Thu May 06, 2021 6:44 am, edited 2 times in total.
- Brianmcg321
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Re: Why simplicity ?
The simpler my portfolio is the more money I make, and the less time I have to waste with strategery. I know what I know. I know the more complicated and slice and dice, or stock picking I try to do, the lower my returns will be over time. Its just basic statistics.
Sometimes its hard for people to think that doing nothing but holding VTSAX or VTWAX and just keep adding on a regular basis will make you multi millionaire. People think it takes skill and if you only practiced and studied you could master this skill and get rich. But in reality, you could just go broke.
This really appeals to me. When I help someone at work with their 401k or other personal finance that is really ignorant on the subject they can't believe it could be this easy.
Another reason for me, is that my wife really has no interest. I explain our different accounts to her and what's in them and why. She usually just asks "So, are we making money". Basically if something were to happen to me, she knows the order which she will pull money out of the accounts. Its easy as there is only one fund in each one. She won't have to decide between a bunch of different funds within each account to sell.
Sometimes its hard for people to think that doing nothing but holding VTSAX or VTWAX and just keep adding on a regular basis will make you multi millionaire. People think it takes skill and if you only practiced and studied you could master this skill and get rich. But in reality, you could just go broke.
This really appeals to me. When I help someone at work with their 401k or other personal finance that is really ignorant on the subject they can't believe it could be this easy.
Another reason for me, is that my wife really has no interest. I explain our different accounts to her and what's in them and why. She usually just asks "So, are we making money". Basically if something were to happen to me, she knows the order which she will pull money out of the accounts. Its easy as there is only one fund in each one. She won't have to decide between a bunch of different funds within each account to sell.
Rules to investing: |
1. Don't lose money. |
2. Don't forget rule number 1.
Re: Why simplicity ?
For me, it keeps me focused on maximizing investments rather than analyzing, second guessing, and allowing emotions into my investing strategy. It doesn't bother me if other strategies experience greater returns. I'm going to accomplish my own financial success with this time tested strategy.
Jack Bogle: "Simplicity is the master key to financial success"
Jack Bogle: "Simplicity is the master key to financial success"
Light weight baby!
Re: Why simplicity ?
Let me flip the question. It has been empirically demonstrated that a very, very simple approach wins the vast majority of the time. There are a couple simple formulas for this.
Before going to MORE COMPLEX, why?
If you have a good reason, then fine. But most people are just fooling themselves.
Before going to MORE COMPLEX, why?
If you have a good reason, then fine. But most people are just fooling themselves.
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Re: Why simplicity ?
I'll answer this with two anecdotal, but very accurate quotes.
"The majority of investors underperform their own holdings"
"Fidelity's best investors are dead"
The answer to your question is that human behavior gets in the way more often than not. People overestimate their ability to stick to a plan when things aren't going well. They end up performance chasing or selling at the wrong time when the news or their social influences get the better of them.
Take this moment in time to recognize that if you never invested another dollar, your current portfolio is statistically better off with you dead than alive. Act like you are dead with everything you have already accumulated, and focus your time living by contributing as much as you can.
The defense of simplicity rests - as should we all with our investments.
"The majority of investors underperform their own holdings"
"Fidelity's best investors are dead"
The answer to your question is that human behavior gets in the way more often than not. People overestimate their ability to stick to a plan when things aren't going well. They end up performance chasing or selling at the wrong time when the news or their social influences get the better of them.
Take this moment in time to recognize that if you never invested another dollar, your current portfolio is statistically better off with you dead than alive. Act like you are dead with everything you have already accumulated, and focus your time living by contributing as much as you can.
The defense of simplicity rests - as should we all with our investments.
VTWAX and chill
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Re: Why simplicity ?
There are lots of reasons to favor a TSM portfolio, but I put simplicity pretty low on the list. Once someone deviates from TSM with a little additional complexity, I see no reason not to add additional complexities. Once one has a spreadsheet to determine where to put new additions and how to rebalance, a 10 fund portfolio is no more difficult to manage than a 2-3 fund portfolio. Moreover, if a new small 3% allocation to some diversifier yields a potential small potential marginal benefit to the portfolio, why not do it? A small marginal benefit is still a benefit. I just counted; I have 16 funds in my portfolio, so it’s obvious where I stand
Dave.
Dave.
Re: Why simplicity ?
Jim O'Shaughnessy (who was on the Bloomberg program and brought up the alleged study) has come out and said that no such study exists.bogledogle87 wrote: ↑Thu May 06, 2021 7:27 am I'll answer this with two anecdotal, but very accurate quotes.
"The majority of investors underperform their own holdings"
"Fidelity's best investors are dead"
The answer to your question is that human behavior gets in the way more often than not. People overestimate their ability to stick to a plan when things aren't going well. They end up performance chasing or selling at the wrong time when the news or their social influences get the better of them.
Take this moment in time to recognize that if you never invested another dollar, your current portfolio is statistically better off with you dead than alive. Act like you are dead with everything you have already accumulated, and focus your time living by contributing as much as you can.
The defense of simplicity rests - as should we all with our investments.
1/That story was told to me by a former colleague which perhaps allowed me to lower my guard on it. When I went looking for it, I found nothing. Pure Urban Legend. Underlying the importance of seeing the source material. My passing it on in an interview gave it more life.
2/ And then that interview got picked up by multiple news sources. And on and on. Another reason to "trust, but verify."
https://twitter.com/jposhaughnessy/stat ... 3663925248
I guess it all could be much worse. |
They could be warming up my hearse.
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Re: Why simplicity ?
For me it’s the opposite. I feel that if I’m diversified as broadly as I can be, then there are no temptations to make changes.
Dave
Re: Why simplicity ?
I suppose there are possibilities, but the simplicity of a Vanguard TR or LifeStrategy Fund would save many people from behavioral errors. Even Vanguard Balanced would get the job done quite nicely.
Investing in a simple way has saved me from myself and I'm much wealthier because of it.
Re: Why simplicity ?
For me, understanding this concept requires moving beyond investing to a broader view. There are many complex issues in life where facts, reliable information and unreliable information exist. More importantly, complex tasks are complex due to the absence of absolutes resulting from the evolution of the issue from informational and perceived standpoints. In the case of investing there are, as a result, many differing opinions that rely upon confirmation bias or finding support for one's interpretation while minimizing or rejecting criticisms of it. In short, simplicity is a viable concept just as is the broader Boglehead approach. However, there are other approaches as well, including those that do not focus on simplicity as a key issue.
Tim
Tim
Re: Why simplicity ?
Seems like a lot of folks have hit on the main reason, it's simple because it really is. I think the reason for the focus on simplicity is that advisors and brokers in the marketplace like to hide in complexity and pull unnecessary amounts of fees while doing it.
Re: Why simplicity ?
It's not about making things simple for the sake of simplification. The benefits of simplicity (ie. 3 fund portfolio) is because over any time horizon (short term or long term), we simply don't know the future.
Will the SCV premium persist? What sectors are going to over perform? Why not 100% US equities? Should I tilt towards China? Why have bonds if interest are going to rise?, etc.
Will the SCV premium persist? What sectors are going to over perform? Why not 100% US equities? Should I tilt towards China? Why have bonds if interest are going to rise?, etc.
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Re: Why simplicity ?
Re: Why simplicity ?
I am lazy.
Still, my sloth-inspired portfolio has provided a good enough retirement. I have no desire to work any harder in pursuing a possibly better portfolio.
Besides, deep thinking and math sometimes makes my head hurt. So I tend to avoid such activities, unless I really, really, really have to do so.
Broken Man 1999
I am lazy.
Still, my sloth-inspired portfolio has provided a good enough retirement. I have no desire to work any harder in pursuing a possibly better portfolio.
Besides, deep thinking and math sometimes makes my head hurt. So I tend to avoid such activities, unless I really, really, really have to do so.
Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go." - Mark Twain
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Re: Why simplicity ?
Wow, lots of great answers in this thread. I like to think of simplicity vs complexity in terms of return per effort. In my mind, simplicity gets you 85% of the potential (for example using just a few funds and regular investing in 401k and IRA with a basic stock/bond asset allocation). Some moderate complexity might get you an additional 10% of the potential (better optimization of taxable/Roth/Traditional accounts, tax efficiency, tax loss harvesting, fund optimization/selection/etc). Moderate complexity items are low risk but take more time. Extreme complexity is fighting for the last 5% of potential that may or may not pay off - i.e. it comes with a higher risk of underperforming and much more personal time. (Note the % are just a gut feeling and in no way represent a real analysis)
Personally I dabble a little bit in the extreme complexity but focus my time on the basics and moderate optimization.
Personally I dabble a little bit in the extreme complexity but focus my time on the basics and moderate optimization.
- Taylor Larimore
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Re: Why simplicity ?
Astones: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.
When I am unsure about a subject, I find out what experts say:
What Experts Say About "Simplicity"
Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Simplicity is the master key to financial success. -- We ignore the real diamonds of simplicity, seeking instead the illusory rhinestones of complexity."
"Simplicity is the master key to financial success." -- Jack Bogle
Re: Why simplicity ?
And the funds you mention could indeed be the optimal choice for you. They are optimized for an absolutely typical investor, though. The more one deviates from that situation, the more something more tailored to them in particular (i.e. more complex) becomes a better solution.alpenglow wrote: ↑Thu May 06, 2021 7:44 amI suppose there are possibilities, but the simplicity of a Vanguard TR or LifeStrategy Fund would save many people from behavioral errors. Even Vanguard Balanced would get the job done quite nicely.
Investing in a simple way has saved me from myself and I'm much wealthier because of it.
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Re: Why simplicity ?
I think the key is what people believe to be optimal. If I believe a 3 fund portfolio is optimal, why add complexity?
However when it comes to taxes, a lot of people on here (myself included) will add complexity to save a little on taxes.
So I don't think people are against complexity, it's just a matter of proving a benefit.
Re: Why simplicity ?
Great question. Great thread. Great to see Taylor's link to his simplicity pantheon (worth a read!).
To me, in general:
1) Simple things work, complicated things don't work.
2) Unless complexity is solving a specific problem, it has more drawbacks than benefits.
3) Paradox of choice is real and significant.
When considering those points together, complexity is often (not always) a non-solution to a non-problem.
To me, in general:
1) Simple things work, complicated things don't work.
2) Unless complexity is solving a specific problem, it has more drawbacks than benefits.
3) Paradox of choice is real and significant.
When considering those points together, complexity is often (not always) a non-solution to a non-problem.
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Re: Why simplicity ?
I use a simple portfolio simply because I don't profess to know/understand all the detailed reasoning of choosing more complex options. What I do know is that by investing fairly simply over the past 20+ years, I was able to retire last month with a fairly significant stash, which makes me very happy! That's good enough for me.
And to me, "good enough" with a pretty high level of confidence beats chasing "better" with less confidence.
And to me, "good enough" with a pretty high level of confidence beats chasing "better" with less confidence.
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Re: Why simplicity ?
In my personal experience, I dramatically underestimated the psychological cost of rebalancing from my best performing asset class (US Stocks) into the underachievers (International, REITs). I have no problems balancing into bonds in a bull market (as they're not supposed to do well), and I had no problems rebalancing into stocks when they were on sale in March. The only reason I didn't do the same in 2008 was because I was at 100% stocks at the time (and remained so through 2017). Despite all that, I found it surprisingly hard to rebalancing into a dud for fifteen years, even though I intellectually understand the benefits of diversification and the probability of extended underperformance.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.
Swapping out separate funds for VTWAX (Total World) made it that much easier. If I could find an inexpensive all-in-one factor with international, or an international with a factor tilt, I would hop on it, but I haven't seen any that hits everything I want. Avantis & DFA offer the size/value/profitability tilts, but not an all-in-one with international. Fidelity Four-in-One (FFNOX) is probably closest, as it seems to have a slight small cap tilt, and the bond allocation is close to where my IPS puts me in two years. I am a bit irritated that the .13% ER is triple its most expensive individual component (.015%, .036%, .035%, .025%), but that's honestly peanuts. International goes from 40% to 25%, and that has the same effect as performance chasing, but it's small enough that it really shouldn't matter.
Re: Why simplicity ?
If you don't have to rebalance, you don't have to be tempted to market time.
Never look back unless you are planning to go that way
Re: Why simplicity ?
This. I also have been streamlining my possessions. Why not have less "stuff"? Less to clean, less to organize, less to look through when you need to find something... I bought original paintings last year for the first time, from an emerging artist. My place looks great! And it would sell in a heartbeat.dodecahedron wrote: ↑Thu May 06, 2021 6:03 amGlad you asked the question. Good to get us explicitly articulating our reasoning.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?
I agree with what has been written above, particularly avoiding behavioral mistakes. Also, reducing stress, frustration, annoyances with glitches in customer service, transaction processing, etc.
For those of us who are older and facing mortality and the possibility that someone else may need to take over managing our finances due to incapacity, a compelling reason for simplicity is reducing the burdens on our eventual POAs, executors, and heirs down the road.
I have friends who were unexpectedly faced with dealing with tangled messes of complex portfolios and assets they did not understand (including exotic securities in foreign accounts) after a parent or other elderly relative suddenly had a stroke or otherwise became incapacitated. Navigating medical bills, prescriptions, insurance reimbursement, home health care aide hiring and supervision, etc. is bad enough without trying to make sense of a complex investment portfolio with multiple moving parts.
I would like to avoid imposing unnecessary burdens on my beloved successor decision makers.
And having experienced the death of several family members who died unexpectedly or were incapacitated unexpectedly at relatively young ages, I am acutely aware that we may or may not get any warning to "put our affairs in order" before someone else we love is thrust with the responsibility for managing everything.
I just re-read this and it seems contradictory. I meant that I get rid of junk, and I curate my living space quite well.
Re: Why simplicity ?
Another benefit to simplicity is that eventually you will die and someone will need to take over the complex mess. If that is a spouse are they ready to handle a complex financial investment plan?
- abuss368
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Re: Why simplicity ?
Thank you for providing that link Taylor! Excellent reminder. I have focused on simplifying both our financial and non-financial lives and it has paid off. Our Two Fund Portfolio, as recommended by Jack Bogle and Warren Buffet has been key on the financial side. On the other side, we focused on removing clutter and simplifying life.Taylor Larimore wrote: ↑Thu May 06, 2021 9:36 amAstones: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.
When I am unsure about a subject, I find out what experts say:
What Experts Say About "Simplicity"
Best wishes.
TaylorJack Bogle's Words of Wisdom: "Simplicity is the master key to financial success. -- We ignore the real diamonds of simplicity, seeking instead the illusory rhinestones of complexity."
You have taught me much my friend.
Tony
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Why simplicity ?
Its ER is actually 0.11Independent George wrote: ↑Thu May 06, 2021 10:56 amIn my personal experience, I dramatically underestimated the psychological cost of rebalancing from my best performing asset class (US Stocks) into the underachievers (International, REITs). I have no problems balancing into bonds in a bull market (as they're not supposed to do well), and I had no problems rebalancing into stocks when they were on sale in March. The only reason I didn't do the same in 2008 was because I was at 100% stocks at the time (and remained so through 2017). Despite all that, I found it surprisingly hard to rebalancing into a dud for fifteen years, even though I intellectually understand the benefits of diversification and the probability of extended underperformance.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.
Swapping out separate funds for VTWAX (Total World) made it that much easier. If I could find an inexpensive all-in-one factor with international, or an international with a factor tilt, I would hop on it, but I haven't seen any that hits everything I want. Avantis & DFA offer the size/value/profitability tilts, but not an all-in-one with international. Fidelity Four-in-One (FFNOX) is probably closest, as it seems to have a slight small cap tilt, and the bond allocation is close to where my IPS puts me in two years. I am a bit irritated that the .13% ER is triple its most expensive individual component (.015%, .036%, .035%, .025%), but that's honestly peanuts. International goes from 40% to 25%, and that has the same effect as performance chasing, but it's small enough that it really shouldn't matter.
It is an excellent fund that checks a lot of boxes one could own a lifetime.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett
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Re: Why simplicity ?
What additional funds would you propose to add to your portfolio, and why? There are valid and invalid reasons to have a more complicated portfolio.