This is what you usually think of when you hear about minimalism, but minimalism is really just a mindset.
When I was younger I was in a 12-step program, and a popular saying there was “take what you want, and leave the rest.”
That’s a pretty good description of what minimalism is. If something is useful or valuable you keep it, and if it’s not, you leave it behind.
And the more I think about that, the more I like how much it applies to investing.
If you only invest in the handful of things that are worth investing in, and leave everything else behind, you should be better off.
Morgan Housel invests like this. Here’s what he told me:
“I’m actually now down to the Vanguard Total Stock Market Index and Berkshire Hathaway. My entire net worth is now literally a checking account, a house, and those two stocks. I don’t think it needs to be more complicated than that.”
If we look deeper, most people are confusing complexity with better.
This is easy to do when there’s an entire financial industry that perpetuates the idea you’re being irresponsible by not doing more.
Because imagine paying someone boatloads of money — tens and even hundreds of thousands over a lifetime — to invest your money, and all they do is put you in some index funds.
Would you feel like you’re getting your money’s worth?
No, because we’ve been conditioned to believe that paying more gets us something better. If you’re staying at the Four Seasons you expect better service than the Holiday Inn.
That’s why when you pay someone for investment advice they’re forced to constantly be tinkering and tweaking your investments to make it seem like you’re getting your money’s worth.
In reality, the only thing you’re getting is higher fees and worse performance.
In one study researchers performed a sting operation by sending hundreds of fake clients to advisers. They found the advisers encouraged chasing returns, recommended strategies that lined their own pockets, and pushed expensive active funds.
Another experiment found that advisers shifted more of their clients’ money to funds that shared the fees with them, and that also performed worse than the alternatives.
Warren Buffett has estimated that investors wasted more than $100 billion on advice over the past decade. Why pay higher fees and get worse performance when you can easily put together your own small portfolio?
Here’s some examples using Fidelity or Vanguard.
- Fidelity: Freedom Index Fund
- Vanguard: Target Retirement Fund
- Fidelity: Total Market Index, US Bond Index
- Vanguard: Total Stock Market Index, Total Bond Market Index
- Fidelity: Total Market Index, US Bond Index, Total International Index
- Vanguard: Total Stock Market Index, Total Bond Market Index, Total International Stock Index
You see, investing doesn’t need to be any more complicated than that, yet readers are always telling me they have a gazillion accounts scattered all over the place.
And then they ask me if I’ve heard of some new investing app.
Here I am thinking they need to consolidate, and so I ask them if they think adding yet another account to their collection is the answer.
Is more really better?
What I’m trying to get them to see is that investing isn’t about more accounts, more investments, more tweaking.
It’s human nature to think that you need to be doing more. That it has to be more complicated than it really is. But 99.999% of investing is just doing nothing.
As I said, minimalism is a mindset. My entire net worth is an S&P 500 index fund, a handful of stocks, a condo, and a checking account.
Over the last couple decades I wanted to do more, but I always came to the same conclusion.
Doing more means making things more complicated, and making things more complicated doesn’t necessarily mean making them better.