Complexity vs. Thoughtfulness

Are you reading this blog on your smartphone? If so, can you tell me exactly how the characters in this sentence have come to appear on your screen?

Of course you can’t, and neither can I. You just know where the On switch is.

Just as it is unnecessary for you to be able to articulate the engineering of modern computing so that you can while away hours on social media, the essential technical details that you need to know about investing in order to make a sound decision are mercifully few.

Yes, there are a handful of fundamental laws of investing to master. The good news is that they are grounded in common sense and knowledge that you already possess. You do not need to employ algebra to understand that:

• Risk and reward move together in the same direction.

• There are no free lunches.

• You shouldn’t put all your eggs in one basket.

• Incentives matter, so it’s useful to know what motivates someone when they make a recommendation.

A large part of the investment industry is devoted to convincing you that investing is hard. It really isn’t.

But while you can safely skim past much of the mathematical complexities, you do need to be thoughtful. About your goals (What are you investing for? When do you need the money that you have invested?) and your emotions (How upset would you be if your investment lost a little of its value? Or a lot?).

And, in fact, it is the “thought exercise” part of the equation that can trip you up. Did you buy the latest, most technologically whizzy smartphone without considering if you actually need all of those bells and whistles? Did you make an investment decision based on a representation of its possible returns without considering if the features of the investment product actually made sense for your life and your goals? Same thing.

Perhaps we attach value to complexity because it comes from a place that is outside of ourselves. It represents something that is “better” than our own limitations. But when it comes to making an investing decision, the most valuable piece of information that you need is within yourself.

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