Music Mondays – Least Complicated


I Used to Complicate My Investments

I wrote a post months ago before anyone but my family and friends were reading my blog about my investment advice. Since no one read that, I thought I would discuss my investment philosophy in a different way. I decided to become a financial advisor a little more than 2 years ago when my own financial picture seemed to be getting too complicated for me to handle. Despite the fact that I helped large corporate clients invest money, the world of personal investments was a complete mystery to me. I had no idea what an ETF was and why I should even care.

Just like the masses of people who struggle over picking their 401k investments, I had no idea what funds I should own in my portfolio. Years ago, my dad gave me a book about asset allocation to help me, but of course I didn’t read it because just the phrase “asset allocation” seemed like a foreign concept to me. I realized a few years ago that if a smart person like me was struggling with these areas, then I was probably not alone, and I was right. There are plenty of smart people out there who get confused when it comes to investments and financial planning.

Until I Got Educated

When I finally started working at the financial services company, I was excited to get a behind the scenes understanding of the markets and determining the best investment mix for both my clients and me. Because I am an overachiever, I studied for months and consulted every expert that came into our office about the best investments. Since we were such a large firm with an office in the middle of New York City, we had third party companies in the office daily speaking to us about anything from hedge funds to annuities to structured notes to ETFs.

I had amazing resources at my fingertips where I could take the information from these experts and construct portfolios and test them out for my clients, and because I was on the quest for the best investment solution for my clients, I must have created hundreds of different portfolios with various mixes of investment products. And after all of this research and analysis, I came to the conclusion that the best solution for my clients and me was to pick the least complicated investment portfolio.

Now I Opt for this Least Complicated Approach

There are tens of thousands of financial experts out there, who are trying to convince you that you need to get creative with your portfolios or diversify into every market and company under the sun. At the end of the day, though, the best thing you can do is pick a portfolio with just stocks and bonds, determine an asset allocation, and then stick with it over time.

You can even achieve all of this with one mutual fund or one ETF. This is a little financial advisor tip that no financial advisor really wants you to know. You do not have to pay lots of fees to someone to create the perfect investment portfolio for you, there are plenty of off-the-shelf recommendations for you to choose from that do as good, if not better than your advisor.

Sometimes It’s Just One Fund or ETF

What do these look like? If you were to search for them in Vanguard, Fidelity or any other brokerage firm, you would look for asset allocation funds or balanced funds. These can sometimes be called Target Date Funds or a Balanced Index Fund as well. You can easily find these in your investment firm by just searching these phrases (I know because I tested it out). The great thing that these funds do for you, is they provide you with the opportunity to invest in stocks and bonds at the level of comfort that you have which would be aggressive if you are more comfortable with risk or conservative if you are more risk averse.

Let’s just say that you like risk and you choose a more aggressive investment portfolio, then your fund or ETF would likely own 75% stocks and 25% bonds. The benefit of owning both is that typically when one is performing poorly, the other one is performing better. People complain about the stock market returns in their portfolios from 2000 to 2012 because they were essentially flat; however, if you were invested in bonds, your bond portfolio was up over 15% over that period of time.

While working at the advisory firm, I discovered that there was a big asset allocation fund that many advisors at the firm sold to their clients as part of their investment portfolios. The joke was that the fund performed better over a 10-year period than any other advisor portfolio. Why? Because it picked a stock bond mix and rebalanced over time.

Asset Allocation + Rebalancing = SUCCESS!!!!

The last few years, the stock market has performed well and bonds have not; however, the great thing about a balanced or asset allocation fund is that the portfolio maintains it’s mix; therefore, when bonds are not performing well, your mix may look like 80% stocks and 20% bonds at which point the manager will sell your stocks (which are up) and buy your bonds (which are down). This is exactly what market investing is all about, buying low and selling high. When you commit to a balance, you build in a discipline around sticking with this practice.

Some people may read this and think that I am oversimplifying the process, but I welcome their argument, because in my research and real life applications, this simplified and least complicated process over time is the key to investment success. When you create this plan and stick with it, over the long haul your investments will not only grow in value, but you will have a lot less stress along the way. The least complicated approach to investing is the most appealing one to me in the long run.

The next time you are thinking about what to do with your retirement or brokerage investments, think about this song and remember that sometimes it’s best to let your portfolio become the least complicated part of your life.

Do you own balanced or target date funds? Do you find investments complicated or have you simplified them?

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Shannon is a financial planner who left a “traditional” financial services firm to start her own company, The Financial Gym, because she felt traditional financial services firms did not have the tools or resources to help people in their 20s and 30s who are starting out and trying to build assets while also managing debt. She realized that the key to long-term personal financial success is a commitment to financial fitness and making smart financial choices. Through her blog, Financially Blonde, her book, Train Your Way To Financial Fitness, her podcast, Martinis and Your Money and The Financial Gym, Shannon is committed to making financial fitness fun, easy and accessible for everyone.


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