Simple Rules to Live By
Key Takeaways
Recent events have shown that investing in complicated investments in order to generate a higher return can have disastrous results for long-term wealth.
Simple investments are probably best suited to attain the future that you have envisioned for yourself and your family.
By building a plan, making sure it’s sustainable, controlling what you can, and reflecting on your decisions, you can grow your assets in a consistent and stress-free manner. Sometimes, simplicity is best.
Simplicity is the ultimate sophistication
It’s never been more obvious that we are poor predictors of the future, especially when it comes to investments, than such a time as now. Whether you are a retail investor or large trader, last year did not go to according to plan. Even more so if you were holding on to more complex investment products designed for “sophisticated investors” (as shown in the articles below)
Asia investors ‘gobsmacked’ by $17bn Credit Suisse bond wipeout - Risky AT1 debt was popular in the region and a sell-off has sparked margin calls
Blackstone’s $69 Billion Real Estate Fund Hit Monthly Redemption Limit
But there is actually no need to hold complicated investments in order to generate a return. Often enough, the simple ones are not only the best but also the easiest to implement.
Sukiyabashi Jiro, a sushi restaurant in Tokyo, Japan is run by chef Jiro Ono. The restaurant has earned 3 Michelin stars for every year since 2007 and was made famous by the documentary “Jiro Dreams of Sushi” which was released in 2011.
Food critics and reviews have frequently noted that his sushi was arguably one of the best around, with many asking how it could be so good when it was so simple. Jiro himself has noted that there was no complexity to making good sushi, just choosing good rice and pairing with the right type of fish — well, that and a lifelong dedication to mastering his craft (he is 97 years old at the moment).
We can learn a lesson or two from Jiro, which can also apply to the way we invest. This can be done with the following simple but effective strategies:
Your strategy must be something
you can stick with, through any cycle
You need some sort of plan to reach your goals. That’s true in life, work, or relationships. Deciding on the best strategy should involve looking at the range and likelihood of possible outcomes. An advisor would be able to help you work out good and bad scenarios for your investments.
Whilst we all hope for the good, we need to plan such that if the bad comes to pass, you are prepared and there is a contingency for it. When constructing a portfolio there should always be an expectation of both loss and return over a certain timeframe. If there isn’t you should dig a little deeper.
Often, the path with the highest return is not always the most optimal.
Control what you can
You cannot control if the market goes up or down next year. But what you can control is how much you save, how much risk you take, and the quality of the investment components that go into your portfolio.
Just like Jiro making his high quality sushi — placing your assets in evidence-based investments will give you the highest chance of long-term investment success. This is the main reason why our core portfolios have these components — so that you need not make any guesses to the direction of the market, and you know that over the long-term, you will receive the appropriate return owed to you.
Judge yourself by the decisions you made
As with anything in life, there is a always a possibility that things go wrong and it is these events and circumstances that can have a significant impact — to both your plan and mental emotional state. What matters most is how you respond to these sudden changes.
For instance, COVID-19 created an unprecedented global situation where we were forced to sit still for many months. Anyone going through such a period, even with a well-thought out plan would still be facing enormous uncertainty. On hindsight, we now know that not tweaking your investment portfolio — and even adding to it — during that period would have reaped significant rewards. However one would have needed the fortitude as well as a guiding hand to have made it through such a stressful time. Hopefully you made the right decision then, and will continue to do so in the future.
The future is uncertain, but the quality of your decisions doesn’t have to be. When you feel good about the choices you make, even when things don’t work out the way you’d hoped, you have the satisfaction of knowing you did everything you could.
Keep it simple
The more complex your portfolio, the more investments you have scattered around with different institutions and advisors, then the higher the likelihood that you may have missed something out. After all, it will be hard to track everything that is going on. A scattershot approach to investment is usually not the most optimal and it will be hard to keep track of and calculate the risk and return on an ongoing basis. You may enjoy it now, and maybe even during your later years — almost like a game of placing your money in different pots trying to reap the highest returns.
But when you are no longer around and one of your family members needs to pick up where you left off, would they enjoy it as much as you did or even have the same level of investment success? You really don’t want something disastrous to happen to your hard-earned assets.
If you need help streamlining your financial goals, simplifying your assets and the investments that you are holding, come and chat with us to see how we can implement investment plans which encompass all your goals and also help you invest simply but effectively.
