Simplicity is best

So, today’s blog is called ‘simplicity is best’, because we think this also goes for financial strategies. The simpler, the better.

 

When I find myself in times of trouble, mother Mary comes to me
Speaking words of wisdom, let it be
And in my hour of darkness she is standing right in front of me
Speaking words of wisdom, let it be

What a song – Let It Be by The Beatles. Why is it people loved this song so much? It’s a fantastic tune by a much-loved band, but another reason why we think it’s so popular is the fact that the lyrics are so simple and easy to remember. In fact, in the song that Paul McCartney sang about his mother, he sings the lyrics ‘let it be’ no less than 36 times. People can remember it easily, and sing along accordingly (we challenge you not to get the song stuck in your head after reading the lyrics!).
 
So, today’s blog is called ‘simplicity is best’, because we think this also goes for financial strategies. The simpler, the better.
 
Complicated strategies are difficult to stick to. Simplicity and routine are best.
When it comes to your superannuation strategies, they should also be simple. Set a routine, and stick to it for the next ten years.
 
Let’s have a look at a few examples of complicated strategies.

1. Self-managed super funds – people are often in one when they don’t need to be. Usually, they’ve been set up by an accountant, who of course makes a commission, and leaves the client with a huge box full of paperwork that they then struggle to bring to us (physically). Having one of these funds costs $67,000 a year alone in running costs. We believe that apart from the expense itself, the long hours spent on something that is potentially not your area of expertise just isn’t worth the mental energy. Check out Podcast 21: Why 99% of people shouldn’t have SMSFs.
2. Having multiple sub-investment funds – apart from super, some people have up to ten (or more!) sub-investment funds, too, in the hope that one of them will make a return. The reason for this is that people want to have some control over their investments – but usually, it just ends up being more costly and more complicated.
3. Strategies that change based on market conditions – for example if there is a drop in the market and your adviser tells you to move to cash as these changes happen. This is complicated to keep up with, and extremely difficult to get the timing right. No-one can predict what the market is going to do.

What about some simple but effective strategies?

1. Use a low-cost pooled superannuation fund. What is that exactly? Some examples are Sun Super, MLC – that is, the bigger, low-cost super funds that pool all their funds for investment purposes (buying power). They are experts in investing, and you can rest assured that they are industry compliant. In a nutshell – we recommend them due to low cost and peace of mind.
2. Have broad category investment strategies that you can remember. If you’re in a superfund and you choose a strategy, for example a high-growth fund, that’s pretty easy to keep track of. Or if you are in an index fund, despite changes in who the companies are, you know that at any given time you are invested in the top 1,500 companies. These are easy to remember.
3. Strategies that remain the same regardless of market conditions. Even if the top 1,500 companies’ prices are down by –30%, all you have to do is keep putting your $500 a week in (as an example). Nothing needs to change.
4. All of the strategies should fit onto one A4 piece of paper. When it comes to meeting with a client, we like to be able to fit the strategies onto one sheet. If not, it’s too complicated, and probably too difficult for most clients to understand.

 
Our key message is: keep your strategies simple. And if you’ve already done that, then just Let It Be.​

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