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I enjoy tasting new beers, and today there are some very good ones on the shelves. Still, it hasn’t always been this way. Some time in the nascent days of the micro-brewery craze, I recall my boss, the owner of the beer distributor, commenting that it was as if the tiny brewers were having a contest to see who could make the lousiest tasting beer.
I think that there’s an analogy that can be made between the abundance of micro-breweries and myriad financial products in that not all of them leave a good taste in my mouth.
Variable life insurance and variable annuities, real estate investment trusts, oil well partnerships to name a few that have been around for a while. Now we have things like crypto money, private equity, leveraged funds, and a slew of niche exchange traded funds that track all sorts of weird things. And don’t forget the endless array of things a prospective advisor might utter in order to snag your money.
In a recent post, Bill W wrote that he poured all his contributions into the S&P500 for 40 years. Simple. Wow. I commented that we should coin a new phrase, Keep It Boring Stupid, KIBS. (I’m not advocating for everyone to go all in on a single index, rather, I am just illustrating my point).
When it comes to investing, boring is good, and few, if any, HumbleDollar readers would buy into the promises that many investments expound. But today’s workers are our children and grand-children, they have their own savings, and soon, many will have some of ours as well. I wouldn’t want them to bite on the hype.
I’m not suggesting we preach financial fire and brimstone to the kiddies, perhaps just set a good example and maybe share a story or two about our life experiences. Maybe we can convince them that “there ain’t no such thing as easy money”. Rickie Lee Jones – Easy Money (w/ Lyrics)
As a retired fee only advisor, I agree that keeping it simple is normally the best investment philosophy. However, there are a few issues where do-it-yourself investors often stray while striving for simplicity:
Investors would be prudent to know a little about these fundamental principles and how they apply to their individual situations before trying to keep it (too) simple.
Robert, thanks for this. Many of us DIY investors don’t know what we don’t know. I believe that the majority of the population requires the help of an fee based advisor such as yourself.
Sadly, I was once in the business, employed by a firm that was owned by a huge insurance company. they were all about selling several of the products I mentioned in my article.
Consumers lacking financial acumen can’t distinguish the good guys from the bad.
And of course, I would never advise anyone to go all in on the S&P, or any other single index.
Great post about keeping it simple (or boring) Dan. Thanks.I’ve been retired five years now and my wife and I are financially secure. In my 20s when I had more disposable income than I needed I dabbled in options trading. After about 2 years I had enriched a broker by about 2K and had nothing to show for it. After exploring IPOs and penny stocks in my early 30s I had a similar outcome. Finally in my mid 30s I began to seriously contribute to my employer’s retirement plan until I retired at 70. My financial journey also included several whole life policies that I cashed out a few years from retirement to pay off a large mortgage. My foray into whole life insurance was at the advice of my father’s financial advisor who for a time managed our retirement and brokerage accounts. After reconnecting with an old HS friend (an estate planner at a small savings and loan) I began reading HD. Since retiring I’ve managed all of our finances. All of our funds except our checking account and two high interest savings accounts are with Fidelity. Every year Fidelity checks in with me for a free consultation. Our funds are diversified in low cost mutual funds and ETFs. Our portfolio is 75% equities (US and int’l) and 25% bond funds. For the past few years I’ve been required to take required minimum distributions. So far, I’ve taken most of the distributions from stock funds; if the market turns down I’ll take the RMDs primarily from the bond funds.
In hindsight, to paraphrase a classic rock song (Mellencamp?) I wish I knew then what I know now. Thanks for your post Dan. I’ve learned so much from HD contributors.
I have had my share of misadventures as well. Thanks for such an honest and personal post.
Love your pithy KIBS slogan and the academic research that backs it up.
LOL, Dan, I don’t know about the academic research part.
Drinking beer is obviously the academic research part 😉
I must have killed too many brain cells drinking beer.
Dan, you’ve hit the nail on the head. There is a lot to be said in life for taking the simple path. Find a beer you like, an investment option that works reliably, and soldier on.
Actually Dan I wholeheartedly disagree. There is easy money to be had. Save as much as you can. Invest in an appropriate Target Date Fund and then ignore. I have instructed my daughter to do such and her portfolio is increasing nicely.
I have generally followed this rule and have earned an excellent 8.6% per annum with a fairly conservative (45/45/10) portfolio over the past 10 years. Just this past December I have finally had a a total increase in my earnings that has exceeded the money I have invested. It was easy with just a little discipline in spending, rebalancing, and for the most part ignoring the noise (the exception being increasing my stock allocation 5% with corrections, and 10% in bear markets then selling, returning to my base allocation when the market reaches a new all time high.
See, it actually has been EASY!
Is having a career where you are good at doing your tasks AND enjoy doing them AND getting well paid for doing them considered “easy money”?
Dave’s comment that consistently investing in a target date fund equates to easy money does sound easy. However, how easy is it for many people to find a career that is fulfilling, good paying, and secure? How successful are people’s efforts to consistently save and invest throughout their working years while raising a family and dealing with all the curve-balls life throws. I would agree with you that for most, it’s harder than it looks.
Dan,
I’ll be the first to admit that I was blessed to be lucky enough to find a career that I enjoyed.
Lots of people have to do things they don’t like to make ‘ends meet’.
I would say so. There is the quote which has been attributed to both Mark Twain and Confucius (not bad company to be in), “ If you love what you do, you’ll never work a day in your life.”
If we could only plant those sayings in all our children and grands, their investments health would follow. Their lives would be fulfilled.
The sayings are nice.
But it is my children and grandkiddies that are the sweetness and fulfillment.
I actually see your point, Dave. Keeping it boring really is the easy way.
Still, keep in mind that the premise of my article is that complicated investments are not a path to easy money.
I think about this often. Thankfully, where I live, employees are required by law to contribute to a retirement account. While I’m not thrilled about default investment funds in general, with my kids in mind I’m actually glad that’s where their contributions automatically go. Their inertia and lack of interest in investing will probably keep them from falling for any “complex” investment schemes.
I’ve talked to my daughters about money and investing, but at their current life stage, money seems to disappear faster than free beer at a craft beer festival. My daughters will inherit a reasonable amount of wealth someday—hopefully many, many years from now. I’m counting on them being much more financially mature by that point.
100% in agreement here, Dan. Don’t like sour beers or most IPAs, even though my middle son brews both at his craft brewery. My investments are all in the KIBS category.
I agree with both your taste in beers AND investment philosophy.
I happen to like lagers best of all. Then Ales.
I really try to avoid IPAs.