Investing and Organized Common Sense

If you start with competitive investing, like beating your friends or an index, you are doomed. Almost no one is that smart for long enough using the usual investing techniques.

Common sense comes in when you can decide what you want the money for. If you get it, does it really matter much how others did? Not so much. Competition leads to mistakes, and mistakes cost both money and time.

It pays to remember that competitive investing requires many more resources than just money. Time, research, skill, and education to name a few. Think about what you might have earned using those resources in other ways before deciding you can “beat the market.”

Keeping it simple.

Everyone has seen the investment return quilt that appears around this time each year. It demonstrates that no particular investment class will be best next year. Few people could tell you what was best last year, nevermind next year.

I saw an interesting quilt recently. Ben Carlson provided it in an article entitled Updating My Favourite Performance Chart for 2020. You can find the article here.

The key thing to notice is the “EW” asset class. It is just what happens when you cut your portfolio into every category shown and invest an equal amount in each slice. Pretty simple, and yet, over 10 years, it outperformed 6 of the classes used, including commodities, emerging markets, and International stocks.

You could find many more asset classes to consider, and you might improve on what Ben shows.

More comprehensive study

I think this is one of the most interesting sites you can find, but then I like data. The Measure of a Plan.

In particular, look at their 35-year asset quilt here. You can find a data chart and some graphs that will give you a quick lesson on what volatility looks like. Once you see the complexity of even a few asset classes, you start to see the merit of simplicity.

For the excitement seeking crowd, allocate some share of your portfolio to play money and let the rest work away towards your eventual goal.

The takeaway.

Save in two parts.

The larger part is enough to achieve your end need with reasonable predictability.

The smaller part is the play money. Might win big. Might lose it all.

How you mix the two savings parts is up to you. Just be sure there is some simple mixing rule that gets your retirement money together. Figure on losing all the play money. Think of diversified portfolios and a Goldilocks yield. Something just right for you.

Organized common sense says to get what you need before you start to try for what you might like but don’t need.

I help people have more income and larger, more liquid estates. 

Call or email or in Canada 705-927-4770

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