The simplest financial plans tend to work, while complex ones tend to either fail or never be implemented. Such is human nature.
We tend to fall for the complexity bias. To our disadvantage.
“Build no mechanism simply if a way can be found to make it complex and wonderful”
Sometimes you might think that is the purpose of financial planners
Most people who work in complicated environments, economists, financial advisors, programmers and entrepreneurs, have discovered simplicity has a high cost and no one seems to appreciate it.
Simplicity and elegance are unpopular because they require hard work and discipline to achieve and education to be appreciated. Edsger W. Dijkstra
The outcome of our inherent love of the complex is high cost and low reliability.
If you love complexity because it makes a good story at the club or because you feel special when immersed in it, you will miss out. Complex things are more fragile. They have more moving parts and more ways to go wrong. Simple things tend to be robust. Reliability is a value.
While simplicity does not guarantee an outcome, it does make for an easier journey and one that provides learning opportunities. If we begin with the idea the future is unknowable, simple will be be easier to reassemble when something changes. Complex tends to collapse, because most of the time you cannot isolate the variable that destroyed it.
There is no such thing as the KISS method in life. Life is complicated and you cannot “Keep” a complicated thing simple. You can however, make it simpler. That does not require doing things differently, it requires that you refuse to do things that make it needlessly complicated.
Take investing for example.
We know the stock market is stable over long periods. More than the bond market, strangely. That means if your time frame is long, say more than 20 years, there is not so much volatility in the stock market as to give you pause.
The problem is we see the long run as a series of short runs and therefore if a short run fails, the whole thing is at risk.
It isn’t a chain. A broken link does not imperil the long result.
Defenses are complex so why go there?
If you can see your time frame and you can ignore those who use complexity as a sales tool, life will get easier. Knowing your purpose frequently will delete the need for complexity. Here is a simple guideline from Charles Ellis, the founder of Greenwich Associates.
The average long-term experience in investing is never surprising, but the short-term experience is always surprising
If you are investing for the long term, why would you let short term surprises misdirect you?
Simplicity is a great virtue but it requires hard work to achieve it and education to appreciate it. And to make matters worse: complexity sells better
If you are talking to a financial advisor and you begin to sense complexity, you might be being sold. That is not always bad, but you need to consider if the goal is being met with the complicated tactic.
You also must address the question of whether the complexity is in fact not complicated. Maybe you are missing important knowledge. If so, the learning step is important.
You can get help with that because every advisor knows a well-informed client makes better decisions.
I believe it was the great ogre philosopher Gary who observed that complexity is, generally speaking, an illusion of conscious desire. All things exist in as simple a form as necessity dictates. When a thing is labeled ‘complex,’ that’s just a roundabout way of saying you’re not observant enough to understand it.
A. Lee Martinez, In the Company of Ogres
The trick is to know when the thing is as simple as possible. If it seems complex because you do not understand it well enough, learn more. Once you know simple you can tell when complexity is being used as a tool to sell something.
And you know what to do about that.
Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario.
In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.
Please be in touch if I can help you. firstname.lastname@example.org 866-285-7772