Why simplicity beats complexity

Special to the Financial Independence Hub

Complexity. It’s hard to avoid.  Tune into the news, and something’s always breaking.  Even in your own life, how many “other” tasks get in the way of the good stuff?

I’m not suggesting you should only do what is immediately gratifying.  There’s considerable enjoyment to be found in taking on tough challenges.  But today I want to focus on why simplicity beats complexity, especially when it comes to your personal finances.

Simplifying your investments

When it comes to writing about investments why reinvent the wheel?  I agree with every point “A Wealth of Common Sense” blogger Ben Carlson makes in this excellent piece, “Why Simple Beats Complex.”  Instead of writing an overly repetitive post, I recommend you give this a read.  Basically, we are prone to using our oversized brains to over-complicate things, especially investments.  Simple advice:  Don’t do that.

Simplifying your finances

While I don’t want to split hairs, there is a subtle, but incredibly important difference between financial goals, financial plans and financial planning.  Knowing the difference helps simplify all three.

If your financial goals won’t fit on an index card, they’re probably too complicated. That’s not just me talking.  Here’s a book on it: “The Index Card.”  Behavior Gap advisor Carl Richards took on the topic too in “The One-Page Financial Plan.”

Financial plans are those big binders somebody hands you.  They’re prepared once, and usually never fully read, let alone implemented.  They make great dust-collectors on your shelf.

Financial planning is not a one-time event; it’s the process of periodically (usually yearly) updating your financial goals and objectives to incorporate any big changes wrought by your own or other circumstances.  Some years, there may be no changes, but checking in every so often can be very simple and, simply put, keeps everything on track.

Simple is not the same as easy

This is a topic for a future post, but all too often I’ve seen investors mistake “easy” as “simple” – to their financial detriment.  To me, simplicity is not about taking the easy way out.  It’s the art of designing good, simple habits you can effectively implement and readily sustain and it’s what I strive to achieve as my clients’ advisor.  It’s what I recommend for you as well.

Steve Lowrie holds the CFA designation and has 25 years of experience dealing with individual investors. Before creating Lowrie Financial in 2009, he worked at various Bay Street brokerage firms both as an advisor and in management. “I help investors ignore the Wall and Bay Street hype and hysteria, and focus on what’s best for themselves.” This blog originally appeared on his site on May 8, 2018 and is republished here with permission. 

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