Don’t Get Caught In Fancy Britches: No Frills Investing
The Case for No-Frills Investing
The rules of investing (outside of your farm & food business) are staggeringly simple: minimize costs, optimize for taxes, be on your best behavior, and let compounding do the work.
You don’t need a three-piece suit in the packing shed, and you don’t need a complicated portfolio to succeed. No-frills investing is about stripping away the excess and focusing on what truly matters. Here’s how I invest.
First Things First: Before You Invest
Before you start putting money into the market, make sure your foundation is solid:
Insurance Deductibles Covered – If disaster strikes, you need cash on hand to cover your out-of-pocket costs before insurance kicks in.
Emergency Fund Secured – At least a few months' worth of expenses in a safe, accessible account keeps you from choose between lesser evils when you need cash.
Investing should come after you’ve covered these basics.
It’s Always Sunny in the Stock Market
The winds of fortune blow cold for everyone. And there are times we're all stuck in a true Nor'easter. But that's the worst time to panic with your long-term investments. So even if the market drops well below freezing, imagine your investments under the sun in the Caribbean -- because the money you need for the next five years is not in the stock market. If you've planned well, that money is in cash, available for true emergencies; or in short-term bonds, ready for that purchase you've planned a few years for now. For your long-term investments, we have to let the storm pass.
The Case for Going Simple
Investing is simple. We invest in stocks for growth because we believe that companies will continue to make money over time. They add value to financing (bonds and such) and goods (commodities) which is why they should outperform over the long-term. Businesses innovate, expand, and generate profits, and as shareholders, we benefit from that growth.
The No Frills Portfolio
If you want to invest without all the unnecessary layers, here’s what to focus on:
Asset Diversification - We want to reduce risk, not outperform the market. There are plenty of ways to get there, some better than others. But get there, none-the-less.
Tax Diversification - A mix of tax-deferred, tax-free, and regular brokerage accounts. There’s some sorting to do of investments, but it’s do-able.
Automated Investing – Set it and forget it.
Low Costs, Always – Keep the expense ratios down.
Ignore the Noise — The market doesn’t move based on what your Uncle Dave says and it doesn’t matter to you anyways (see the coconut tree bit).
Fancy Britches You Shouldn’t Be Seen In
Some investments are all hat, no cattle. What we’d recommend avoiding:
Theme Investments – Disruptive tech funds, clean energy funds (sorry, self), marijuana funds, or anything hyper-specialized. Three pretty good reasons:
These are often expensive, volatile, and not diversified.
Even if we can glimpse the future, we can’t predict the winners.
There are better ways to make an impact than the stock market.
High-Yield & Dividend Funds – Chasing yield definitely leads to extra taxes and possibly into sectors with weak growth, high fees, and companies living off debt. You also don’t need to tilt anything.
Whole Life & Indexed Universal Life Insurance – Insurance should be for protection, not investing.
Expensive Actively Managed Funds – Most active managers do not beat the market over the long run.
Alternative Investments – If you can’t explain how it makes money, don’t invest in it.
Why The Financial Industry Wants You in Fancy Britches
Wall Street loves complexity. The more confused you are, the more money they make selling you layers of unnecessary investments.
But the truth is: most people can build real wealth with a simple, no-frills portfolio.
The real value financial advisors provide is not in outperforming the market. It’s in using the market as just one tool amongst many to help you reach your financial goals.
Ready to simplify your investments? Let’s talk.
