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My Sunday Washington Post Business Section column is out. This morning, we look at the advantages of avoiding complexity in your investment process. The print version had the simple headline Simplifying Your Investment Strategy while the online version used the hedder Keep it simple, avoid the pitfalls.

There are know advantages to certain complex investing strategies, but these complexities become harmful disadvantages most of the times, as Humans are emotionally unable to follow them.

By creating an investment plan that is simple and easy to follow, you make it more likely that you will ultimately succeed and reach your goals. Hence, all of the familiar themes get mentioned in my focus on simplicity: ETFs, lower costs, diversification, rebalancing, dollar cost averaging, etc.

Here’s an excerpt from the column:

We must recognize our own behavioral errors. To be blunt, you are not likely to become a cognitive Zen master anytime soon. But a little enlightenment could keep you from making some common investing errors.

Knowing these limitations, we can design an investment plan to circumvent the behavioral pitfalls. And a good step is to simplify. Toward that end, keep these 10 ideas in mind when approaching your portfolio”

The 10 ideas are not groundbreaking — but they are often overlooked.

Less can be more.


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Source:
Keep it simple, avoid the pitfalls
Barry Ritholtz
Washington Post, January 25 2013  
http://www.washingtonpost.com/business/keep-it-simple-avoid-the-pitfalls/2013/01/24/210063fc-65a3-11e2-9e1b-07db1d2ccd5b_story.html

The Washington Post  Sunday – 27 Jan 2013 – Page #94 (PDF)

 

Category: Apprenticed Investor, Index/ETFs, Investing, Rules

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

11 Responses to “Simplifying Your Investment Strategy”

  1. GZR says:

    Timeless advice for free. It doesn’t get any better than this. Thanks, Barry

  2. yuvalw says:

    Hi Barry,

    The new shortened RSS is quite inconvenient… Please consider change it back to include the full post, Thx.

  3. jd351 says:

    BR,

    Great Advice!!!! and Validation !!!

  4. RW says:

    Good article; useful. Made me think of this little gem from thezikomoletter

    You Are Not An Investor

    When most people talk about “investing” in stocks and bonds, they are not investing in any meaningful sense. Instead, they are allocating their savings towards the financial markets, hoping to preserve capital and maybe make a return. Despite its branding as “investment” by the financial industry, allocating savings towards the secondary market is not the same thing as providing capital for companies to grow.

    …to describe your savings as investments is to put the cart before the horse. It might make sense to allocate some of your savings towards investments, but that is only one of a range of options. By focusing on your “savings portfolio”, rather than an “investment portfolio”, you can change the emphasis and priorities. By being clear about what you are actually trying to achieve, you can start to obtain a better result.

  5. scottinnj says:

    Very good column. I guess after reading that, where does your firm fit into that (not be snarky genuinely asking).

  6. TR says:

    RW,
    Great article

  7. Very good column. & Timeless advice for free. It doesn’t get any better than this. Thanks, Barry

    +

    RW,
    Great article

    x2

  8. AJT says:

    Thanks for advice. I’ve been enjoying the focus these last few weeks on asset allocation. One question, did you leave out mid cap stocks in the sample portfolio for a specific reason? Or are those accounted for at the edges of the large and small cap space? Thanks!

  9. victor says:

    This rhymes with Occam’s Razor and John Bogle’s “The Little Book of Common Sense Investing”, great stuff if we could just have the discipline. On investing in ETF’s vs. individual large cap dividend or non-dividend paying companies. The individual co’s may be great to own but watch out, they’re inherently fragile, not robust, susceptible to (negative) black swans, see IBM in the 90′s, the big Dot com’s early 2000′s , BP (want a spill?), recently AAPL.

  10. Ssembonge says:

    The new website design sucks big time. I normally read via Google Reader and Flip board. And if reading on iPad the mobile layout is appalling.

    If it’s not broken, for Christ sake don’t fix it.

  11. eliz says:

    Loved this post. Reminded me of “The Ivy Portfolio,” only a lot more succinct! :-)