Ahhh yes, the draw of all those flavors....almost too hard to pass up isn't it.
I'd archived a blog post from Abnormal Returns that came out right after the first of the year because it was prescient. It's actually a post I could have linked off of in early January in any year from 1979 when I started in the personal finance game till this year. Were I so inclined (and I might be) I could use it in January each year from here till the day the good Lord sees fit to take me from this planet, that's how good it is.
"Choosing Simplicity In The New Year" is a gem. It lays out for investors some pretty simple and straight forward metrics to follow that will in fact, hold the vast majority of us in good stead. In it's unabashed simplicity It reminds me of the Progresso Soup commercial where the first order of the day is, "eat the soup!"
I'm particularly moved today to write on this particular topic because I've been working lately with a Client who commented to me over the Christmas break that he didn't find our "strategy" to be changing very much over time. At point of fact there were about seven "satellite" asset classes that moved in and out of his portfolio over the last few years, all at a profit and all almost perfectly timed. We were lucky. Throughout that period we did hold pretty tight to our core allocation of stock and bond ETF's.
We've also rebalanced his portfolio as anyone should and we rebalance more or less at our regular intervals, twice each year lest we, as Vanguard noted in their research, offset the value of rebalancing in transaction costs.
Choosing simplicity though for many is akin to picking Vanilla at Baskin Robbins. It's hard when you're tempted by so many other things. But here's the thing, Vanilla works!!
As quoted in the Abnormal Returns blog post;
"The risks of trying to avoid the risks (of the 60/40 portfolio) are greater than the risks themselves," Mr. Kinniry said.
You see, the elegance in Vanilla lies not only in the essence of it's simplicity but in the time honored ability of it's more oft than not perpetual satisfaction. We've long argued for the notion that investing should be two things, [a] based on funding goals and [b] fun. Ok, well it should at least not be stressful. Look, I'm going to bet you a dish of vanilla that if you can't achieve a goal with a basket of equity and bond ETF's your problem's not your investments it's the goal your aiming for! Take another Abnormal Returns quote from their blog, this one by Jame Picerno at the Capital Spectator;
"The lesson for most folks is that broad diversification across asset classes and periodic rebalancing of those assets, will capture average to above average returns on a fairly reliable basis through time. The flip side of this lesson is that trying too hard in money management boosts the odds of ending up with high-priced mediocrity, or worse."
The immutable point is likely nestled in the final paragraph of the Abnormal Returns blog post. It notes a truism that's as reliable as Vanilla is good. That at some point in any year, any month, any week, any lifetime there will come a point when simple looks stupid. Either the stock market will soar and any bond holdings, or emerging market equity will look like an anchor or there'll be a correction in the market and owning any stocks will seem like passing on the Cherry Garcia in favor of Vanilla Bean was just a woefully bad choice, all things being equal. To add to that there will come a point when "doing nothing" is actually the most "doing" you could be "doing." (I still to this day struggle with why actively deciding to stay the course doesn't count as a decision. Imagine if you woke up every day and dutifully announced to your partner that "I've decided to stay with you...." Is this more of a commitment because you utter it than it is because you feel safe enough to not have to?)
So let's keep it simple.
- Set reasonable goals
- Calculate what you have to have, save and earn to reach it
- Understand your willingness/ability to accept risk
- Build a block of money to meet that goal at that risk
And let us know how we can help.