Stop complicating your financial affairs!

Sonnie Bailey

14 June 2019

There are a number of terrific, Kiwi-based, personal finance forums online. For some breadcrumbs, look for Facebook groups inspired by Mr Money Mustache or The Barefoot Investor; check out the Personal Finance NZ subreddit; or Sorted’s community forum.

For the most part these forums attract a lot of clever, engaged individuals. I like these groups, and the people who contribute to them, a lot. (These forums also have not-so-clever and not-so-nice individuals. Increasingly they have people trying to spruik their own services as well. As with anything on the internet, take what you come across with a grain of salt. My own blog is no exception!)

I contribute to some of these forums occasionally. If I had more time I would contribute more often.

One of the recurring themes on these forums that drives me a little crazy is that many people have a tendency to over-“optimise” their financial affairs.

There are regular debates about which platform or underlying investment is “best” – whether to use a Simplicity fund, one of the many SuperLife funds, or one of the funds available via Sharesies or InvestNow.

You often see conversations about historical performance and how this fund or that fund is better than another.

(For what it’s worth, the majority of people who are on these sorts of forums buy in to index-based, “passive” investing, although there are still some hold-outs who think you can beat the market by picking stocks. There are also plenty of people who like to recommend property at every opportunity – some of them have incentives for doing so. I’ll leave those conversations out of the picture for now. My focus in this article is on people who are largely on-board with investing in low-fee, diversified managed funds.)

I get bored and frustrated at these conversations. Because the only way you can know which investment decision will be “best” is if you have a crystal ball.

The reality is, these debates are operating in shades of good. So long as you get your asset allocation right, and so long as you’re investing in one or more widely-diversified funds that use independent trustees/supervisors and don’t have exorbitant fees, you’ll probably be fine.

You can spend your time and energy trying to determine whether and to what extent you should invest in the new Smartshares Automation and Robotics fund or Healthcare Innovation fund via InvestNow. So long as you’re not investing all of your growth funds in either type of fund (remember the importance of diversifying!), you’ll probably be fine.

Do I know whether either of these specialised funds will outperform the general market? No. There are lots of people who think they will, but that means there is more demand for these funds, and these beliefs and expectations are essentially priced in to these funds.

This is what you’re really doing: crystal-ball gazing.

Personally, I have a strong bias towards investing in just one or two funds that cover the entire market, and making sure that your investments taken together (including your KiwiSaver funds, money in the bank, in property, etc) reflect a suitable asset allocation for you.

To be frank, for most (but not all!) of my clients, I simply recommend one or more of the Simplicity funds or SuperLife funds, and that’s that.

(And yes, that’s what I do myself. I eat my own dogfood/drink my own champagne.)

It really doesn’t have to be harder than that.

You can debate forever about which specific Simplicity/SuperLife/Sharesies/InvestNow fund will give you the best return. But no one really knows. The truth is, they’re unlikely to generate significantly different returns (unless they have a significantly different risk profile – which usually comes down to asset allocation).

I recommend keeping things simple. Don’t over-complicate things.

Focus on the things that you can know, and can control. Like:

  • Making sure the underlying fund(s) you pick provide you with the right asset allocation across your entire investment portfolio.
  • Making sure you spend less than you earn, and earn more than you spend.
  • Making sure you’re managing the risks to which you’re exposed, through insurance and/or other tools and strategies.

It’s funny. People who are engaged with their money seem to go one of two ways. Some people go down the rabbit hole, and go deeeeeeeeeeeeep. The more they know, they more they feel like they need to know.

Others realise that you can achieve essentially the same outcomes by keeping things simple. Eventually, the tend to “graduate” from these online forums, and focus on other areas of their lives.

One of my philosophies when it comes to money is that keeping things simple is often the best thing you can do. Make your finances boring, so you can make the rest of your life interesting.

(Weird thing for a financial adviser to say, right? Especially since it would be in my interest to make these things more complicated than they really are, and emphasise the need to engage me on an ongoing basis. The weird thing is, I’m GREAT at rationalising, and creating post-hoc explanations in my own favour, in other areas of my life. But I can’t do it when it comes to personal finance, even though it would be in my interest. This is what makes my financial advice business so unique.)

Now that I’ve given you permission to simplify your financial life, I hope you’ll have more time to focus on other things. What will you do?

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