Their are a plethora of investment products on the market and with the most complex then the people selling you them often do not understand them. The advisors just understand that they get the biggest paychecks with increasingly complex products. Also, often people are understandably overwhelmed by the vast amounts of complex invest options. However, the best products are the simplest to understand and often the increasing complexity of investments hides the ever increasing fees where the real money is made for the brokerages and investment advisors. If you cannot explain an investment product in a sentence or two without a dictionary then you are probably overpaying and underperforming.
Index funds are extremely simple and easy to understand. When you are buying an index fund you have relinquished the false idea that you can predict the future, and are rightfully saying “I just want my fair share of the stock market. that the index represents.”
Interestingly this is not only the easiest and cheapest way to invest; it is also the best.
Rick Ferri had an excellent presentation which I will briefly summarize. There are three stages to your journey as a Boglehead. You understand the importance and power of investing and index funds. The second stage is that you make it complex by trying to get an extra percent based on this factor or that factor or with this technique or that technique. The last stage is simplification. This is the stage when you return back to the first stage in a way and realize that the hours you spend everyday trying to maximize returns is wasting time and hurting your returns.
There is something novel with the human mind in how we think everything must be predictable or controllable. However on Morgan Housel’s collaborative blog, one of his articles can be summarized as saying that investing is a negative art. The less you tinker with it and think about it then the better you will do. Much of the rest of the world doesn’t work like this and it is counter-intuitive. Can you imagine a world where not playing a sport made you better at it or not writing made you a better writer, but in many ways this is how investing works for most people.
Millionaire Librarian 