How Complicated Should Investing Be? #689

But oftentimes folks aren't doing that because they are over complicating things. They're making it a little too complex, is keeping them from their financial goals. And so we're going to try to make sure that does not happen from here on out if you're listening to this podcast. Yeah, and there's a couple things I think that might make sense to complicate a little bit on the investing front. But how complex you get and what you you know,

what you choose to investment. We're going to talk about a bunch of different ways you can complicate things and maybe it's good, and then other ways in which you can overdo it. So that's the that you should completely avoid. That's the theme of this of this combo in this episode. What's this You wanted to talk about getting beers last night or something? Okay, So we got beers with a

friend last night, Uh huh. And there's free parking all around where we hang but there's also a paid parking lot when all the free parking's taken really close to this particular establishment. Yes, And I was driving from across town and they were I couldn't find a free parking spot, and I did want to be a Jurrik and be and be late when when we'd had this hang plan for a little while, so I paid five bucks for parking and I hate that.

says no parking. I don't. You're not gonna park there. There's a good chance you might get towed whatever, make somebody upset. But I guess I mentioned this because I feel like for years I have parked in spots that are like, oh, I'm not totally sure this is a legit spot. It doesn't say no parking, it's not right in front of a fire hydrant, there's no red curb, that kind of thing. And I can't remember the last

time I got a parking ticket. Yeah, it's a you gotta know what you're risking, right, and exactly I think I took a risk I'm willing to take a couple of years ago, when I was meeting a friend down by the airport, he was in town for a second. We grab beers and I parked in I think where like they the valet.

but yes you can, especially these days online. There's so many, so many different toilets you could get, and at some point you just stop carring which toilet suit your vibe the best right And investment choices I think can be similar to that kind of process of when you're renovating

and all the choices you have, the choice overload. There's so many directions you can go in on the investing front, all sorts of options that you can consider, and I do think it for some things in life, more can be merrier, right, but it can also backfire, and things that could be fun or could be energizing ways in which more choice can be beneficial well as possible for it to go too far, especially especially when we're talking about building wealth, and so would we would say, And

something we talk about on the show regularly is that complicating things doesn't always make them better, and in fact, the opposite is typically true, and especially on the investing front. That's right.

of our money. And you know, when there is that much noise, which is often coming from the talking heads in financial media, it is no wonder that we start thinking, Like we start asking ourselves, well, maybe I should be investing internationally, right, Like I should probably diversify.

in the sand. We think it is important to know what the other options out there are and then why it is that we should either consider them or ignore them all together.

grab the ketchup and it's so easy. So I think, yeah, we could stand to have a little more like Aldi in the way we think about investing. And part of the reason we're talking about this today is because when market conditions are good, there's even more of an inclination to shake things up to start overthinking things, and you mentioned, hey, guess what, now we've ended that longest bear run and

we're in a bold market right now. When we are in that bear market, though, when things are going badly, when the stock market is performing poorly, nobody wants to discuss smart investing methods. Everyone's just kind of like covering their head. They're grinning and bearing it.

to start fiddling with their portfolio. It holds a greater allure right now when things are going up up into the right and the boring index fund route, it seems more intelligent, I think when the market is going down, but on the way up, it just it feels kind of like you should be making moves to amplify those gains, right, Why settle for average, when certain things are popping off

to greater degrees. But just because it's more exciting or just because it's more enticing, that doesn't mean it's the direction you should be heading in. That's right, Yeah.

good thing to maintain. And for a lot of folks who do like to tinker, I think having a negligible amount of money that you can trade just for funzis helps them to stay the course and to keep doing the boring, old standard, bland thing with the bulk of their investment dollars. So eat your heart out with that small percentage of play investment dollars.

market kind of thing. Right. And we're also we're not going to focus too much on timing today, right, whether now is a good time to start investing if you haven't already, because for most people, dollar cost averaging is the best approach, right sticking your money into your four one K, your IRA, or your HSA your Health Save mus account, which we always talk about as being an awesome investment vehicle. Most people don't think of it that way.

get paid without giving it a second thought. This is the best way to go, right, And so when it comes to timing, it's not something that we're fans of, and in fact, it's really easy to screw that up and actually shoot yourself in the foot as you're trying to time your entrance into the market in a given on through year. But this strategy, the dollar cost averaging strategy, it works because you're able to remove your emotions from the equation, and our emotions can get the best of us.

But that being said, if you really want to optimize for the highest returns, the data show that lump some investing at the beginning of the year or as soon as you're able to fund a retirement account is the way to go. And I guess the reason we talk about dollar cost averaging is and not lump some, it's just because that's how most people get paid. That's the way it makes most sense. But most folks aren't sitting on like a massive pile when this.

and the more regular the better too. Yeah, and I mean, I do think it's worth maybe trying to work towards

that lump some kind of mindset. If you're able to slowly over time over the years, kind of get ahead of it, right, So as opposed to you get paid, do you invest a portion of that but stockpiling that ahead time, So if you're able to max that out, make that payment that year, but then slowly over time you build up essentially like a little war chest, so that when the new year does hit and you are able to invest in those retirement accounts for the next year.

The ability to make that happen sooner rather than later, it does over the long haul return you higher returns. But then when it comes.

at our disposal than ever before. So it's like the opposite of all the like I was talking about, Matt, Now, it's just like plethor of this range and not just inside of our four oh one k, but then even all of these exterior alternative investment possibilities that we could partake in that we're getting pitched right and left in different places, whether it's a newsletter that you read, or whether it's commercials that you see or social media advertisements, just talking with friends.

have a different take. And again, yeah, it's a topic worth discussing because we get the question from listeners sometimes as well. But Jack Bogel, he's the founder of Van Guard. He's a pretty brilliant dude.

main argument. Something like forty percent of s and P five hundred revenues come from other countries come from overseas, and so folks who have diversified to more international holdings they haven't done as well. But of course past results are not indicative of future returns, and so we're not saying that like, oh, yeah, things, you should only be

investing in US companies. This isn't like a Even though we love America for many reasons, we think that our country is a very fertile ground that comes to starting new industries and the ability for companies to get ahead, that doesn't necessarily mean that over the long haul that international stocks may not do better than the total US stock market. Yeah.

quarter of it. So and it turns out then when you look at the numbers, international stocks are relatively inexpensive these days, which is part of the reason we're probably seeing more headlines about them in front of the show, Ben Carlson Matt Who's just a brilliant mind of love rereading his blog, he recently articulated his ues on why folk should have more international stock exposure, and he said, global diversification is about accepting good enough returns to avoid

the potential for terrible returns at an inopportune time. And I think it's a really good way of thinking about it. You're not necessarily if you do choose to invest internationally, doing it because you're looking for outsized mega returns or anything like that, and you might see better returns over the next decade, who knows, But yeah, I think investing

internationally it's not a necessity. But given the outperformance that the US stock market has seen recently in the past decade plus, international stocks do look cheaper and more attractive right now. This is one of those things where I think you can complicate your life a little bit and add international stocks to your portfolio. But it's also not a have to. Yeah.

That's one of the things you get with Vanguard.

of the portfolio towards bonds. But that doesn't necessarily mean though that you should be going out and also buying a bond index fund, because, especially if you are earlier on in the wealth building stage of your investing life, you can afford, you can handle to weather out those the volatility, these storms of ups and downs, and in fact, you can't afford to not be investing in actual stocks

over the long haul. The closer you get to retirement, yeah, maybe you do want to de risk a little bit and see more consistent returns, but you just need to know that those returns are going to be slightly less than if it was fully in stocks, but.

to swallow. But let's talk about another thing mat that can complicate people's portfolios, and that's investing in a socially responsible way, opting for ESG funds, which is becoming more and more popular. We're seeing a lot of people kind of start to stock more of their money into these kinds of funds. And there's ESG.

and you can't make this up, Matt. But something I saw last week Philip Morris, which is a company that makes cigarettes that have killed so many people, millions of people, Well, they're scoring higher in the ESG ratings than TESLA, like significantly higher. Yes, G, I know. And so it's just like, what in the world is ESG trying to accomplish? And a similar thing, right, companies who are hijacking our attention, they're making products with slave labor overseas, Like many of

those companies are also ESG darlings. They score well on these ESG front So I think the lack of defineability is a massive problem on the estre front. And it's been sold as this way to do good with your investment dollars, but that's not necessarily the way it shakes out in reality.

Opting for these ESG funds, it's not doing anything much for the environment or to change corporate governance. And these these funds, again, you know, they perform more poorly because they come with higher fees oftentimes not to mention worse results. So for a while there it seem like ESG funds were actually performing better and it's just like, all right, if that's the direction you want to go based on

past performance. But we're actually seeing that shift recently. But all of those things are eating into your returns significantly over time, and we think that most most folks should actually avoid some of these newer ESG funds and instead stick to traditional index funds. It's so difficult to define what it is that these different ESG funds are trying to achieve. So much of it it's not objective, it's subjective.

And so again for you as an individual, you might hold different values than what it is that Meta is trying to accomplish, or Microsoft or any company, regardless of where they are on the ESG scale. And it's my subjective view that electric cars are better than cigarettes for people over time. So I'm just it's I'm curious. I don't really know how. It feels like there's like the Wizard of Oz making these decisions about behind some sort of curtain about which of these companies qualify for their

funds and which ones don't. And until we get more clarity on that, and until I don't know, it seems like the funds that actually the companies that actually get included in some of those funds are companies that are doing more good. And even then it might not be in people's best interest as intand from financially, like they might be checking all the boxes from from an ESG standpoint, like maybe Philip Morris doesn't get to did they not change their name to Atria or whatever?

into these ESG style index funds. And let's talk about something else that people might do to complicate their investing strategy, and that would be to incorporate more real estate into their investing plan. And that's certainly a more complicated form of investing that you know, we get asked about fairly regularly, especially because you and I we are real estate investors. We're popular estate investors. We each own a handful of

properties in the Atlanta area. And the thing is we're kind of mostly talking about the passive style investing on this episode, and you and I we think of real estate investing is more like taking on a part time job, because it kind of is right not only in the identifying and purchasing of that property, but in the managing of that property too. And so if you're not up

for that. If you're not up for all of the extra work that it's going to take to own and manage that rental property, the fixes, the calls that you're going to have to get from the tenant, the things you're going to have to do to keep up with that property, you should avoid becoming a landlord. And you know, like I said this, so we're mostly talking about the simple forms of investing that most people are doing with every paycheck. So buying real estate is just this other

ball of wax all together. It's not a bad one. It's not something we would necessarily steer people away from. And in fact, we've done episodes in the past. We'll link to one or two in the show notes if you want about investing in real estate and how it can be a powerful wealth builder. We're happy real estate investors ourselves. But the truth is there are other more passive ways to invest in real estate besides buying a duplex down the street in the town where you live

or whatever. And so if you do want to add real estate exposure to your investments and you don't want to go with the part time job route, Matt, do you want to talk about maybe kind of some other ways to do that.

easily dollar cost average into. You don't have to plunk down a large amount of cash, like twenty five thousand dollars is oftentimes sort of like the minimum amount required to go to some of these private routs.

more focused on investing within stocks via index funds. And even if you don't own your own home, and you're like, well, maybe I should be investing within a read. I don't own my my own property. Reads, they actually make up about five percent of the total stock market. And so guess what, if you own a total stock market index fund, you're probably invested in a reate. But boom, you just didn't even even realize it.

people to accomplish. You have to save up a ton of money, and then numbers don't always make sense, and they make sense a lot less in today's environment than they have than they did years ago. So it's it's harder for people to get into the real estate game. But that brings up like one other I guess way that you can invest in real estate, and that is syndication funds and indication deals. Yeah, so those are interesting too, they're sexy, well they're yeah, I think they get some press,

especially on Instagram. I follow some real estate investors and they're talking about syndication deals all the time. But there are good syndication deals, a bad syndication deals, and all the final realick. They're basically like, just imagine someone buying an apartment complex. Well, it's truly hard to do on your own. So you get a group of investors to pool their money together to buy this apartment complex and then you start, you know, paying all the investors out

as you profit from that apartment complex doing well. And so the thing is, typically you have to have big money to get in the game, and you have to be an accredited investor, which means a net worth of a million dollars or I think an annual income of like two hundred and fifty k or something like that. So it's hard to even qualify for that much less save up the fifty k that it would take to

get in on that one syndication deal. And most people over complicating their lives and they're probably getting to real estate heavy in with their investments by partaking in a syndication deal. That's unless they have been like maxing out those retirement accounts for years and years and years and still they've got extra money and they just really want to go down this hole. There's also a lot of

pitfalls investing in the syndication route. We are already seeing some of these syndications go bust, a lot of investors losing all their money. That doesn't happen in the stock market nearly to the same degree.

stayed a bachelor. I mean, there's all these different choices you make along the way. It's like the.

to go. And it just makes me think of like all these super niche platforms that exist now, Like you can invest in farmland, you can invest in wine, you can invest in whiskey, you can invest in crypto NFTs, and I mean think about how the n FT's done over the past eight to twelve months. I mean, I think that first tweet of Jack Dorsey's went for mega dollars, and now the guy can't even resell it, right, and so I think he did resell it, but for a whole lot less. Yeah, for like pennies on the dollar.

I'll say ways of investing your money. They're just a massive distraction from the tried and true investing methods, that's right.

what we don't don't want folks to do. They're getting distracted from the like the bigger prize, and honestly, like this is to point out that most of the things that we've talked about aren't necessarily inherently bad investments, except for like crypto and NFTs, But like some of these other platforms, there's still investments. It's not like they're MLMs or anything like that where you're totally going to get scammed. It's just that there are other priorities that we want

you to focus on first. If the alternative is to mindlessly blow that money, is to mindlessly consume, then I might even say, okay, well make sure, yeah, maybe you should invest in this platform if that's if that keeps you from blowing money that you otherwise would have invested, I think maybe in that scenario it could actually make sense. But we just want to make sure that you are eating your veggies, your mean potatoes first before you start focusing on.

And let's talk about hiring an advisor for a second, man. I think that's something that the people might think that is either going to help them uncomplicate their finances or they think it might bring more complication. But they think it might bring some necessary complication their life life. And it's not that we think that hiring a human is a bad idea, right, that that a financial advisor can't stry in the right direction, can't give you good advice.

from a professional. That's something that you can do before you talk to a profession right right, It would be so much better to funnel that money into those accounts, more money into those accounts to grow for your future. I think an advisor makes sense for some folks whose situation is getting more complicated, but even then, we want folks to only consider fee only financial planners. X Y Planning Network is probably the best side out there to

find one of those. But I think people like they start to learn about money and they're like, oh, it must be time to hire the advisor. I need a guy. Yeah, girl. The truth is you probably don't unless you're crushing it. You've been crushing it for years on end. Yeah.

got my first real job and started earning money. I don't know if I've ever actually talked about this, sure new podcast logan don't be like that. But I went down I was like, oh, man, I'm earning real money now I'm gonna go talk to this Edward Jones guy. And so I walked down to walked out, you know, and drove down the street and went in there and started talking to him. But even at that point, I realized, this seems pretty expensive, and I think I can do

what you're talking about with without paying you. And I actually just looked this up because I was curious what it is that they charge on the first two hundred and fifty thousand dollars. They charge one point three five percent. Wow, that is expensive, man, And especially for somebody who is just getting started with their investing, that is not a fee that they need to be and they need to

be paying. But so one of the ways around hiring an actual person are is ai it is the all the robo advisors out there, and sometimes we say that, you know, this is a happy medium for a lot of folks, but are those a good choice and what would make someone opt to go in that direction. And this is the second time we've referenced Monday's episode, but we talked about the tax lost harvesting abilities of a robo advisor like Betterment, which we would say it's it's

probably one of the best ones out there. It might be the best of the bunch within the robo advising category. And this is largely because of the like the behavioral finance elements that they've built into the.

through that whole thing. I think if you're going to go the robo advisor direction, like I don't know, I think Betterments, Yeah, is one of the best and that combo of human advice with the kind of robo platform helping you on the tax front and on the advice front. I think it's pretty cool, and you know, for some people it's worth paying the extra money. But let's talk

about Matt just kind of some guideline, some basics. When we talk about simplification of investing and how over complicating things, and of course there are a million ways that you can complicate your investing strategy, but we really believe that it doesn't need to be. It shouldn't have to be, and it shouldn't be terribly complicated. And I think the more complicated you make it, the less likely people are

to partake in that action. Right when you say there's ten hoops to jump through, people are going to just walk away before they start. When the belief is that investing is hard, a lot of folks decide to skip out altogether. And so that does so much more harm than maybe not having quite enough international exposure or missing out on some years where real estate had super good return something like that. Doing the thing, even doing it imperfectly and doing it regularly is the key. It comes

down to. The crux of the matter is don't let perfect be the enemy of good if you're trying to you're just starting out, and you're like, I want to invest the exact right way, the perfect way for future returns, and the perfect way so that I stay the course. I mean, I think my advice would be get started and then continue learning, and you can iterate over time if you want. But simplicity is better than perfection.

opt for what we would call a minimalist portfolio. We've always said that a total stock market or at S and P five hundred fund it gets folks who are in the wealth building phase of their lives basically what it is that they need without overthinking it. And target date funds they are another great set it and forget it approach for money that you're stalking away inside of

your retirement accounts. And so it's not that you can't diversify further, you know, if you wanted to say, add some a little more real estate exposure via a rate, If you want to do that, that's great, you do you. It's just that the minimalist route, investing within a single fund or maybe two that are already well diversified, this is an effective strategy that will get you where it is that you want to be. Yeah, man, I love that.

Like the idea of just keeping it as simple as possible, keeping it minimalist, and then doing the right thing over and over right. So the next thing would we've mentioned is to have that plan and then stick to it, because the best plan is something that you can stick to, and it's it's easy to make complicated plans and then it but it's easier to break those plans too, right, because you're like, wait a second, I got to step three. There's thirty more steps. I'm just gonna bow out right now.

And that's what makes like, it makes me think of the app Couch to five K. Heard someone talking about that recently and how it changed their life. They were nervous to start running. But with that app, it's specifically it like slowly changes the amount of time where you're running and walking so that you don't feel overwhelmed. After two days of You're like, if you try to go run a five k and you've been like, haveing run at all in years, good luck, Right, you're probably gonna

get demoralized. But if you take this couch to five k route and you try to build up over I don't know the course of something like three months, you are in all likelihood gone run an awesome five k a recipe for success. Heck, you might even keep going go ten k pretty soon. Right.

If you just kind of keep doing it with every paycheck, then without overthinking, without overthinking it, you're going to be ahead, vastly ahead of the majority of your peers on the

investing front. Yeah, and so you said kind of shoveling money into those accounts, which makes me think of the fact that especially early on, when you are just getting started with your investing, when you see fluctuations in the market, and especially like we've seen over the past several weeks we've seen a booming market, if you are just getting started with your investments, you're not going to see much change when it comes to the size of your portfolio

because you're just getting started. Truly, what has the biggest impact, what moves the needle of the most is your savings rate and how much money you are able to sock away versus.

finding ways to invest more while we were younger. Basically, you kind of have to like pay your dues a little bit. And once that nest egg gets to be a certain size, well market fluctuations and a growing market, that's when you get to see the beauty of the compound of compounding returns, because compounding returns and interest doesn't make a huge dent in those early years. On the back end is when you start to see.

Bloody bloody blah. And it's not that those conversations are completely worthless, but you're right, like the biggest change that we can make most easily that comes with the less stress and the most likelihood of follow through is to keep it simple and to just ramp up the percentage that we're that we're dedicating each and every month, each every paycheck to those accounts, Like that is the spigot that we can turn on the most that's going to

lead to the largest growth in nest egg. You can try to get that perfect allocation, create the most diverse investment account possible, but the reality is then you're probably not quite as focused on that more important lever and ultimately, yeah, you might have the most diverse portfolio on earth, but you're the perfectly diverse Yeah, but you're missing out than on the most important thing. It's kind of like, well, we talked about back not too long ago with frugality,

how it has to be wishing returns. Same thing. People. If you're so focused on frugality, you're probably not going to be as thoughtful about ramping up your income. And this is true too. I think the more you think about how your portfolio is allocated, boom, you've lost the plot and you're focused too much on the little things. You're majoring on the miners, that's right.

about more. And what we want to encourage you to do is like, once you do have this plan you've heard us talk through, Hey, maybe you should just be looking at a total stock market index fund or an SMP five hundred index fund, or maybe a target date fund. Once you have that plan, ignore everything else. We want you to put the blinders on. We want you to limit the noise, especially when it comes to the different

headlines that you read. But when the market is tanking, folks are like, do you batten down the hatches?

ride last even longer? Basically, and we that is the opposite of what you actually should be doing, And so while everyone else is out there figuring out different ways that they can invest in the latest sexy thing like and who knows what the next iteration of distracting investment opportunities are going to come down the pike, right like they'll come they, oh, they absolutely will, but they are not things that you need to be paying attention to.

And so, yeah, we wanted to talk about the different ways that you can simplify how it is that you invest in. Truly, it does not need to be all that complicated.

called Symptom of Progeny. It's a golden sour ale fermented with spontaneous culture. What were your thoughts on this one?

want out of a golden golden ail. And it's there's I mean, there's a good reason why Kate and I mean, we picked up several bottles of us to bring back home to enjoy, because we certainly enjoyed this one.