It’s easy to think that the more complicated your financial strategy is, the more successful you’ll be: multiple accounts, sophisticated funds, advanced tax strategies. You may have been taught that added complexity is the only way to “do it right.”
In reality, it is our opinion that complexity often gets in the way. Research in behavioral finance shows that too many choices lead to decision fatigue and even paralysis. People delay action because they’re worried about making the “wrong” move.
Why simplicity works.
A simple financial plan doesn’t mean an unsophisticated one. In fact, it can often mean a more effective one. You know exactly where your money is going, and what direction you’re headed in. Built in automation eases implementation and aids progress, without the need for endless decision-making. Fewer moving parts can mean less second guessing. An overly complex plan that is never implemented doesn’t do you much good.
The magic isn’t in building the perfect portfolio. It’s in sticking with a good one through the ups and downs. Market fluctuations are natural and unavoidable. Regularly reviewing your investments to confirm that they match your tolerance for risk is a must-do. If you’ve accumulated so many investment accounts that you can’t step back and look at your big financial picture, it’s time to simplify.
How to simplify.
- Consolidation: Combine investment accounts to streamline monitoring and possibly even reduce fees. Still have old 401(k)s from previous employers? Juggling multiple brokerage accounts with different firms? Consolidating these accounts under one roof can make it easier to track performance, spot overlap in your holdings, and simplify tax reporting at year-end.
- Automation: Set up recurring direct deposits into goals-based accounts (emergency fund, retirement, home renovation, travel, education) to stay on track without having to manually move money around. With automation, the decision to save happens just once, when you set it up. Your goals keep getting funded in the background without any extra work. Your savings grow, month after month, while you focus on everything else.
- Simple allocations: A well-diversified, risk adjusted portfolio often outperforms those endlessly tinkered with. The day-to-day ups and downs of the stock market don’t have a profound impact on your financial well-being over the long term. What does is disciplined investing over your entire working life.
Simplicity isn’t cutting corners. It’s focusing energy where it matters most. The best financial plan isn’t the most complex one. It’s the one you’ll actually follow. A financial plan should make it easier to check in, see your progress, and make changes when life throws something new your way. When your financial life feels manageable, you’re more likely to stay committed to your goals through market swings and the unknowns.
If you’d like to learn more about how to simplify your financial picture, don’t hesitate to reach out.
Disclaimer: This material is for informational purposes only and should not be considered financial, tax, or legal advice. Always consult with a qualified professional regarding your specific situation. All investment strategies involve risk, and there is no assurance that any strategy will achieve its intended results.