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Simple Wealth - Simplify Your Way to Financial Success!


By Daniel Goodwin


In our 24/7 world today of nonstop investment information I find today the average investor is confused and bewildered. Almost all the available information is contradictory, self-serving, and designed to sell certain products or services. Go to Google right now and input the word investing and you will find 1,180,000,000 pages written about investing. The problem is not a dearth of information, to the contrary, it’s too much information.

Choice overload is a cognitive process in which people have a difficult time deciding when faced with many options. The term was first introduced by Alvin Toffler in his 1970 book, Future Shock. So, what happens when people are facing choice overload? The answer is predictably nothing. The phenomenon of over choice occurs when many equivalent choices are available. Deciding becomes overwhelming due to the many potential outcomes and risks that may result from making the wrong choice.

Having too many approximately equally good options is mentally draining because each option must be weighed against alternatives to select the best one. A confused person usually opts for inaction of some sort. What happens to investors when the years roll by and investments fail to perform in such a way as to secure the future you had planned and hoped for? In my opinion it’s little bits and pieces of our American Dream that we begin to part ways with.

Maybe it’s the idea of being able to help your kids buy their first home or help your grand-kids with the cost of college. Maybe it’s that home on the bay or that RV that you always wanted to travel around in, or maybe it’s just peace of mind from the fear of being old, broke and embarrassed.

The questions this article addresses are this. Are there a set of universally accepted practices and principles that an investor can rely upon to guide how he or she will approach investing and which will insure a high probability of success? I say there are…... I furthermore say, “If you know the right things, you don’t have to know everything”

The Practices and Principles to rely upon are as follows:

Market Timing in all its forms is to be avoided. – We would submit for your consideration that you explore this question as a matter of philosophy as it will dictate many of the investment decisions you will make now in the future. “No one has been able to predict the markets with any degree of accuracy”, to quote the great and legendary Peter Lynch who ran Fidelity’s largest fund ever, the Magellan fund. A better choice is to design a risk adjusted portfolio and then simply re-balance it quarterly or annually. You can do this yourself or you can find someone who can do it for you. Trying to “time” the market has proven again and again to be a fool’s errand.

Measuring Risk/Return – In any given week people bring us investments to review that we would avoid for our clients. If we cannot measure the risk and the expected return, we do not invest in it ourselves, and we do not invest in it for our clients, period. In my own earlier years, I personally have paid large tuition bills to learn this lesson about romantic investments that promised huge returns. What investors fail to understand about such ideas is the “cost of capital” concept where the potential for high returns equals a commensurate and high level of risk. Investors routinely fool themselves into thinking they have found an investment where the risk/return paradigm has been shifted in their favor. I can assure you that it has not.

Goals Based Planning – We live in a timing and selection culture where the emphasis seems to be outperforming the other citizens. A wise approach to planning is goals based and measures your personal ability to take on risk. Good questions to ask are, “what are my financial goals and what return do I need to make to reach my goals? And, “Do I want to take on risk more than what is needed to reach my financial goals? Again, what are the goals as the goals should drive the strategy? This is a serious and important conversation that every client needs to have with his or her advisor or with themselves.

Asset Allocation and Diversification- In its most basic form it’s a deal with Heaven that says, “I can’t make a killing and I can’t get killed because I’m too spread out”. The classic Brinson and Ibbotson studies among others demonstrate with empirical data that 93 percent of the variables in market returns come from asset allocation and diversification, which should speak loudly to all of us that this is where we should be focusing most of our time and resources, rather than focusing on timing and in individual stock selection which statistics tell us again, is a fool’s errand.

Planning matters, and a portfolio by itself is not a plan. A portfolio and/or series of a portfolio’s are certainly important elements of a well-conceived financial plan but a portfolio by itself is not a plan. Experience has shown us that people with a plan and an Investment Policy Statement do much better over time than people without a plan and/or those whose primary efforts are centered around out- performance of their neighbor. Taxes are an important aspect of planning and must be integrated into the financial plan.

Re-balancing – The mechanical act of buying low and selling high as a discipline which is the exact opposite of what investors tend to do left to their own devices. Dalbar Research shows year after year that investors routinely under-perform as investment decisions are usually made by little more than instincts and emotions.

Discipline and Investor Behavior– Empirical data shows that investors routinely abandon plans and portfolios (average held is only 3.5 years), and that investor behavior is the dominate determinate of investment/investor outcome. There is a burgeoning and fascinating field of study on human bias and behavior as it relates to investing. Google “Investor Behavior” or Dan Ariely, Professor of Behavior Finance at Duke University should you want to learn more.

Investors who follow these principles and practices are typically on par to reach all their financial goals, and those who are “winging it”, typically are not. In the end, everyone makes his or her own decisions as to where to pin their faith, and to which practices and principles they will chose to follow. Many people opt for the default path of doing nothing which is truly sad, and which may yield the result of despair and even depression as people come face to face with the consequences of their actions or inaction's. Running out of money in retirement has been said to be more feared by seniors than death itself.

Experience has also shown that investors with both a plan and a coach or advisor do far better than those who are flying solo. Vanguard who is king of the hill of low-cost investments produced a White Paper in September of 2016 with the follow quote: “Based on our analysis, advisors can potentially add “about 3%” in net returns”. The study analyzed a very large sample of Vanguards accounts and compared those at Vanguard who worked with an advisor to those Vanguard investors who went at it alone.


This material is for general information and education purposes only.  Information is based on data gathered from what we believe are reliable sources.  It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.  It should also not be construed as advice meeting the particular investment needs of nay investor.

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