Blog for Financial Literacy: A Simple Plan

Today’s post is part of the Blog for Financial Literacy campaign spearheaded by Glenn Cooke of Life Insurance Canada.com. Glenn encouraged dozens of bloggers to devote their November 15 post to sharing their “single best financial tip,” in recognition of Financial Literacy Month.

Long-time readers of Canadian Couch Potato know I occasionally explore some pretty arcane facets of index investing. I hope this advanced information has helped serious index investors make better decisions, but I recognize it may have left some readers scratching their heads. With that in mind, here’s the single best financial tip I can offer: keep your investing strategy simple.

We need to get rid of the idea that successful investing has to be complicated. If you’re naturally curious like me, you’ll genuinely enjoy spending time and effort to learn the subtleties. Gaining a deep knowledge can be empowering, but it’s not essential. What’s more, it comes with the risk of analysis paralysis and the tendency to second-guess your decisions.

Do you disagree with one of the ETF choices in my model portfolios and want to substitute another? Go ahead. Nervous about European equities because of the rotten economy? Leave them out of your portfolio. Can’t decide whether to use a total-market bond fund or stick to short maturities only? Go half and half. None of these decisions is likely to make much difference in the end, especially if you’re just starting out. But if your agonizing is preventing you from implementing your investment plan, that’s a huge problem.

My point is not that the details are unimportant: it’s that they can distract you from the big picture. Any time you’re faced with a minor decision about your portfolio, step back and ask yourself the more fundamental questions: Do I have clear investing goal? Am I saving money regularly? Am I comfortable with my level of risk? Only after you answer those questions confidently should you trouble your mind about the short strokes.

As the proverb goes, perfect is the enemy of good. Just because some guy wrote a book about the Perfect Portfolio doesn’t mean there really is such a thing. A “good enough” portfolio will still help you reach your financial goals.

Are you Streetwise?

While we’re talking about simplicity, ING Direct’s newly rebranded Streetwise Portfolios are an easy way for indexers to get started on their journey. ING Direct Mutual Funds is looking to hire a team of “indexing champions” to coach Streetwise investors by phone and online, and they’ve asked me to help put the word out to readers in the Toronto area. (Team members will eventually have to get their mutual funds license, but this is not a prerequisite.) If you’re interested in learning more about the opportunity, contact Silvio Stroescu.