Good Enough is Almost Always Good Enough

At a diner it is difficult for many people to choose from a thirty page menu. This creates stress and often leads to bad decisions, like ordering Sushi from page 4o on the menu! This is called the paradox of choice. It is often the reason people delay investing. If you let it, this will interfere with some of your most important investment decisions.

Who should mange my money? What types of accounts should I set up? What investments should I use?

If you try to make every decision about your finances perfect, you will most likely fail miserably. The idea is to keep things simple and be approximately right. Don’t overthink things. Focus on getting started and use strategies to limit your choices.

Choosing an advisor is difficult. An alphabet soup of choices such as CFP, CFA, CHFC, CPWA or CIMA can drain the soul. Confusion reigns and often nothing gets done. The way to combat this is to create a simple screening process. Choose an advisor who is a fee-only fiduciary.

It would be preferable if this person was a CFP  or CFA. The most important thing is if you are working with a fiduciary (especially a fee-only one) your advisor is looking out for your best interests. While designations are important, they won’t guarantee you will be receiving advice that is not tainted with the perverse incentives of sales commissions.

A fee-only fiduciary is legally bound to look out for your best interests. This will eliminate all of the commission-based sales people who might give you conflicted advice.

What type of investment account should you set up? Traditional or Roth IRA? 529 or Custodial?  Should I put my money in a standard 401K or Roth 401K? A simple screen is to ask your accountant.

Your accountant might not be an investment expert but he/she knows your tax situation. He/she can eliminate inertia and guide you in the right direction. It should also make your choice the most tax efficient. This will be a way to add to your overall investment returns.

Focus on what you can control. This along with keeping things simple, and limiting your choices will greatly increase your odds of success.

Finally, what investments should go in your account? Hedge funds, commodities, stocks, bonds, or Twitter?  Yikes! Simplify and choose only a low-cost, diversified mix of index funds. Make it even easier and choose a Target Date Fund from a company like Vanguard.

Choose your retirement date and get started. Your job is to contribute and to allow the math of compound interest over many years do its thing. If you can manage to defer 15-20% of your salary and use this simple strategy, you will most likely do much better than your market-timing friends.

Time in the market, low costs and diversification will trump fancy sounding strategies and the investment fad of the day.

You will not regret this. You will be able to go on with your life without the added unnecessary stress of choosing amongst thousands of mutual funds.

The moral of the story is skip the sushi and stick with the meat and potatoes at the diner. Too many choices lead to bad decisions.