Here’s the Only Investing Advice You’ll Ever Need

Source: Thinkstock

Source: Thinkstock

I wish I had a hot key on my computer that would type ‘low-fee index funds’, because I write those four words an astonishing number of times. Or maybe every time I pressed CTRL-$, it could type out “Don’t do [X]; buy low-fee index funds instead!” and I could replace [X] with whichever complicated, faddish investment strategy is in vogue that week.

Then I’d make a hot key to a sentence about dollar-cost averaging, and another for getting my company’s 401(k) match. Finally, CTRL-% will type out a sentence urging people to save at least 20% of their income. With these keys set up, I could be writing finance articles like I’m assembling IKEA furniture, and my productivity would soar. I could probably outsource the work to a writing robot, but on the whole, the advice in them would be sound.

I’d use these auto-generated articles to fight a creeping trend of risk and complexity I’ve noticed in financial writing. As the recession slowly recedes, sound advice becomes staid and boring, investors chase yield, and more complex ideas filter into the mainstream — colorful boats on the slow, gray water of passive investing.

The other day, halfway through an article about rolling a regular IRA into a Self-Directed IRA and using the funds to speculate on real estate, I raised my arms skyward to the gods of finance and yelled “Why??!?” This kind of advice provokes the worst kind of failure for all but the most sophisticated investors.

Rather than run these articles on the newest investing trends, magazines would be better off leaving the page blank save for a short note: Article redacted for readers’ own good. We should be clipping these ideas off at their roots. For 99% of casual investors, the simplest plan has the greatest chance of success.

There’s a parallel between finance writing and financial planning. Both involve taking simple principles and applying them consistently, either in writing or in action. In action, this means saving 20% of income and spreading it between a 401(k), a Roth IRA, and a taxable account that invests in low-fee index funds (there it is again).

In writing, it means convincing people of these facts without boring them to death. I realize how unintuitive this sounds. Imagine if Wine Spectator crowned a $12 Chianti its favorite wine year after year. Often, a higher cost leads to a better product. It’s taken as a signal of quality, and usually implies greater complexity as well.

But in finance, the rewards of complexity are illusory. Fortunately for us, simpler is actually better. Boring is profound, a panacea. So, please bear with me as I publish my latest article, written with my new hot keys:

[X] These days, everyone is doing Self Directed IRAs. Don’t do Self Directed IRAs! Instead, invest in low-fee index funds that track broad market indices. Be sure to fund your 401(k), at least enough to earn the employer match. low-fee index funds. Be sure to set up automatic investments so that you can dollar-cost average. % Try to save 20% of your income and live on 80%. This will ensure that you can retire on time, even with a few unforeseen emergencies. Spend less than you earn. Invest the rest. low fee index funds.

Written by E.A. Mann. The views expressed represent the opinion of the author and are not intended to reflect those of FutureAdvisor or serve as a forecast, a guarantee of future results, investment recommendations or an offer to buy or sell securities.  Past performance is not indicative of future results.