It is our choices... that show what we truly are, far more than our abilities. – J. K. Rowling
"It is our choices... that show what we truly are, far more than our abilities."J. K. Rowling
Passover is now over, which means that for parents with children in the Jerusalem education system, the stress to find out where your children will be going to school next year reaches its crescendo.
Over the next few weeks, the municipality will send out letters assigning children to various schools. While 70%-75% of parents will be satisfied, the rest are left to scramble to figure out Plan B, because they assumed they would be going to the school of their choice.
I have no idea how it works in other parts of the country, but in the capital, parents have to rank, 1-4, the schools that they want their children to go to. Sounds like a good system, except that if you don’t get accepted to your first choice, chances are very good that you will end up with your 4th-ranked school. Why? It’s too complicated to explain in this forum, and after all, this is a personal-finance column.
Growing up in Seattle as an Orthodox Jew, there was no school choice. We had one school to go to, like it or not. With five children either currently in or having already gone through the K-12th-grade system here, after all these years, I have still not gotten use to both the system and the sheer quantity of how many schools there are here.
Don’t get me wrong, I am all for giving people as much choice as possible. But there is a downside. I have found that the schools are very “niche” based – as they need to distinguish themselves from the competition. As such, if your child doesn’t exactly fit the niche, it can be a problem.
Contrast that with the one-school system, where it’s more of a melting pot, and everyone sort of makes their way through the system and gets along with each other. All that being said, I’ll still take the ability to choose from many choices and try and find the best fit for each specific child.
Too much choice can be detrimental
When it comes to investing, sometimes, too much choice can be detrimental. Investors need to tune out all the marketing and 24/7 financial news cycle and focus on keeping their investment strategy simple.
I received a call a few weeks ago from a woman who was in charge of a nonprofit. She had approximately $1 million in the bank and wanted to get some kind of positive return on the money. It was essential that the money be very liquid. She also wanted some very conservative growth. These goals were to keep money available and to ease fundraising burdens in the future.
She told me she had met an insurance salesman at some kind of weekend retreat, and he started offering her some complicated insurance products, including various annuities, as a solution to her problem. She didn’t understand a thing about what he was proposing, but it sounded impressive, so she was almost convinced to give him the money to manage.
I explained to her about the products being offered, the costs involved and that she would be giving up on liquidity, which was very important to her. She had second thoughts.
In an article for Morningstar about investment complexity, Amy C. Arnott, a chartered financial analyst, writes: “The fund industry has grown into a $20 trillion-plus colossus, with more than 10,000 mutual funds and exchange-traded funds (not including multiple share classes) available for investors in the United States. Such abundance is an embarrassment of riches for the everyday investor, but doesn’t always lead to better results.”
“Recent fund launches have become increasingly esoteric and niche-oriented: During the past three years, for example, fund companies rolled out at least 139 funds focusing on options trading, 53 leveraged equity, 39 digital assets (aka cryptocurrency), 26 trading-inverse equity, 274 sector, and 205 thematic funds. Not only can this range of options be overwhelming, but it often leads to worse investor outcomes,” she wrote.
While all these options seem amazing and will do wonders to your portfolio, the numbers tell another story. Arnott cited data that shows this sophistication has impacted investor returns negatively.
There is a well-known acronym in the business world called KISS – Keep it Simple Stupid. This certainly applies for investors as well. You don’t need to build a portfolio with 30 or 40 different assets. So many different assets makes it very hard for the investor to keep track of each investment, can potentially raise costs and adds a lot more time needed for rebalancing.
There are advisers out there who preach building portfolios using four or five ETFs, and that’s it. Depending on the client’s needs and goals, I would usually add a few more ETFs to the mix, but in general, we all agree that the best strategy is to keep it simple.
Don’t think the more esoteric, the better the return. Save yourself time and money and keep it simple.
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.
Aaron Katsman is author of the book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing and is a licensed financial professional both in the United States and Israel and helps people who open investment accounts in the US.