Investing 101: Keep It Simple, Stupid

The-Elements-of-InvestingI would consider myself a novice investor. I have no formal education in the finance or investing field but I’ve taken it upon myself to read financial literature, follow investment blogs and take in as much information on the subject as possible. In this regard, I’m probably more knowledgeable than most of my peers. I also realize that there is a lot more to learn and there will always be people who are more well-versed in investing than me.

Fortunately for those of us who have not pursued a financial degree, investing does not need to be very difficult. In fact, keeping it simple can be a huge advantage.

Everything should be made as simple as possible, but not simpler.

-Albert Einstein

I recently read the book The Elements of Investing written by two big names in investment finance: Burton G. Malkiel, bestselling author of A Random Walk Down Wall Street, and Charles D. Ellis, bestselling author of Winning the Loser’s game. This short book adequately summarizes my current investment strategy and strongly reinforces my views on passive investing.

The Elements of Investing explains the KISS investment strategy, which stands for Keep It Simple, Stupid, (or Keep It Simple, Sweetheart, if you want to be polite about it). The KISS strategy is as follows:

1. Save regularly and start early.

I think I’ve got this one down. I started saving as soon as I started earning any money and I started investing shortly after. I’m in my mid-twenties so I should have plenty of time for compound interest to work its magic.

2. Use company and government-sponsored retirement plans to supercharge your savings and minimize your taxes.

For Canadians, this would be your RRSP and TFSA accounts. I’m contributing enough through payroll deduction to get the maximum employer contribution to my RRSP account, although this isn’t very much. So I’m also putting money away to be able to max out my RRSPs and TFSA every year when I rebalance my portfolio (see #4).

3. Diversify broadly over different securities with low-cost “total market” index funds and different asset types.

I have a portfolio of total market ETFs representing different asset classes from Canadian stocks, US stocks, global stocks, REITs, and bonds. This keeps me diversified at the lowest possible cost.

4. Rebalance annually to the asset mix that’s right for you.

I haven’t had to rebalance yet, as I haven’t held my current portfolio for a full year yet. (Like I said, I’m only a novice!) But I plan to rebalance only once a year, at the same time that I contribute to my TFSA and max out my RRSP accounts. The rest of the year the accounts should go untouched.

5. Stay the course and ignore market fluctuations; they are likely to lead to serious and costly investing mistakes. Focus on the long-term.

Easier said than done, but extremely important. This is where I have little experience since I have yet to go through any large market swing. I check my accounts probably more than I should, considering I will only be making any changes once a year. But I am focused on the long-term and I know that if I just keep up this strategy for the next 30, 40, 50+ years I will do better than most.

The KISS portfolio “gets it right” for at least 90 percent of individual investors.

-The Elements of Investing

Investing in the stock market isn’t that difficult if you keep it simple. KISS investing is an easy, low-cost and worry-free way to save for your retirement. I mean really, if I can do it, anyone can.

What’s your investment strategy? Do you keep things simple?

18 Comments on Investing 101: Keep It Simple, Stupid

  1. Jay@MoneyBulldog
    November 25, 2013 at 11:15 PM (9 months ago)

    Probably one of the most important things that I have learned early in life is that saving is great but investing is better. A lot of people are afraid to make the risk but investments are the way to go to the top.

    Excellent article.

    • ThisLifeOnPurpose
      November 26, 2013 at 9:46 AM (9 months ago)

      Thanks Jay. I know a lot of people who love the idea of investing, but are too afraid to take the risk. But it really isn’t that difficult.

  2. Andrew@livingrichcheaply
    November 26, 2013 at 9:37 AM (9 months ago)

    I have a same investing philosophy. I stick with low cost index funds. I use Vanguard’s target retirement plan for most of my investments and they rebalance automatically. I’m glad I started investing at a young age.

    • ThisLifeOnPurpose
      November 26, 2013 at 10:00 AM (9 months ago)

      I really like Vanguard, and I have a few of their funds. Unfortunately they mostly deal in US dollars and so for Canadians there is an additional complexity with currency conversion.

  3. Broke and Beautiful (@brokeandbeau)
    November 26, 2013 at 9:20 PM (9 months ago)

    Between index funds and the target retirement date funds investing has become super simplified. Most people my age are too afraid to start and they never realize it.

    • ThisLifeOnPurpose
      November 27, 2013 at 9:00 AM (9 months ago)

      In this day and age it really is that easy, but it wasn’t always the case. I know a lot of people that are still too afraid though.

  4. Charles
    November 26, 2013 at 11:32 PM (9 months ago)

    Start early and keep investing through up and down markets. It’s also good to set benchmarks so that you know you’re on track.

    • ThisLifeOnPurpose
      November 27, 2013 at 9:01 AM (9 months ago)

      Hmm I haven’t really set any benchmarks for myself, maybe something I should look into!

  5. moneycone
    November 27, 2013 at 6:29 AM (9 months ago)

    Investors today are incredibly lucky due to the availability of so many low cost funds. Indexing and rebalancing has been proven again and again to be the one of the best strategies for decent returns.

    I got this book when it was made available for free (on Kindle I think). Awesome book!

    • ThisLifeOnPurpose
      November 27, 2013 at 9:02 AM (9 months ago)

      Thanks for the comment! And yes, I’d recommend the book to anyone just starting out, it explains things clearly without too much technical jargon.

  6. Daisy @ Prairie Eco Thrifter
    November 27, 2013 at 8:01 AM (9 months ago)

    I follow most of these; it is really too simple to fail if you do. As a fellow Canadian I am interested to hear where you hold your accounts. We’ll be rebalancing at the end of the year.

    • ThisLifeOnPurpose
      November 27, 2013 at 9:06 AM (9 months ago)

      I have a discount brokerage account with BMO Investorline. I hold some VUN, ZCN, XEF, ZRE, XRB, and XBB. If you’d like to discuss it further feel free to send me a message. I may eventually write a post on this and why I chose each fund, but I’m always interested in seeing what others are doing as well!

  7. Deia @ Nomad Wallet
    November 29, 2013 at 2:04 PM (9 months ago)

    Looks like you’re doing great! There are so many things you can learn just from reading books. I do #1 and instead of all those great things you’re doing, I invest in real estate. Putting my money in RRSPs would place restrictions on how I can invest it, so I only use TFSAs and even then only sparingly. And since index funds are a long-term strategy, I prefer to keep my cash liquid.

    • ThisLifeOnPurpose
      November 29, 2013 at 4:21 PM (9 months ago)

      Thanks for stopping by Deia!
      Investing in real estate is a completely different investing style, but I totally respect those who do it! My mom actually only invests in real estate, and avoids the stock market entirely. So I’ve seen first hand the power of real estate but also the extra skills and time required to do it right. Maybe some day I’ll be a landlord, but for now I’m keeping things as simple as possible!

  8. cashrebel
    December 9, 2013 at 7:28 PM (9 months ago)

    That sounds like some pretty solid advice. I think the toughest for most folks is to really stay the course when the market is bad for 4 or 5 years. I guess you just have to trust that it will turn around eventually. It always has before.

    • ThisLifeOnPurpose
      December 9, 2013 at 9:06 PM (9 months ago)

      That will be the challenge when the time comes! But I know what I’m supposed to do, so the rest is just will power.

  9. Brent Esplin
    January 19, 2014 at 11:21 PM (8 months ago)

    Your current philosophy is the correct one for almost everyone. Over time a low-cost index-fund approach will be the best choice for almost everyone. As you learn more about investing you will run across a lot of people who try to convince you otherwise. Don’t fall for it. The approach you are taking now is backed up by the evidence.

    Thanks for suggesting The Elements of Investing. I have not read that book yet but I have read other books by both Malkiel and Ellis. A Random Walk Down Wall Street is one of my favorite books ever and I also really liked Winning the Loser’s Game. If this book is as good as either of those I am sure it will be great.

    • ThisLifeOnPurpose
      January 20, 2014 at 8:45 AM (8 months ago)

      Hi Brent.

      Thanks for your input. And yes, I do hope to stick to this philosophy over the long-run. I know there are others with many different views, but I would need some pretty compelling arguments to own anything but low-cost index-funds.

      Hopefully you get a chance to read The Elements of Investing! It’s a great, simple book.


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