Our choices… show who we really are, much 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 of figuring out where your children will go to school next year is reaching its crescendo.
In the next few weeks, the municipality will send letters to allocate the children to different schools. While 70%-75% of parents will be happy, the rest are left scrambling to figure out a plan B because they’ve assumed they’ll 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 from 1 to 4 the schools they want their children to attend. Sounds like a good system, except that if you don’t get accepted to your first choice, chances are very good that you’ll end up with the 4th ranked school. Why? It’s too complicated to explain in this forum, and this is, after all, a personal finance column.
Growing up in Seattle as an Orthodox Jew, there was no school choice. Whether we wanted to or not, we went to the same school. With five children who are currently or have already gone through the K-12th grade system here, after all these years I am still not used to both the system and the sheer amount of schools that are here.
Don’t get me wrong, I’m all for giving people as much choice as possible. But there is also a downside. I have found schools to be very “niche” – as they need to differentiate themselves from the competition. As such, if your child doesn’t exactly fit the niche, it could be a problem.
Compare that to the single school system where it’s more of a mixing pot and everyone somehow works their way through the system and gets along with each other. All that being said, I will still take advantage of the opportunity to choose from many options and try to find the best fit for each particular child.
Too much choice can be disastrous
When it comes to investing, sometimes too much choice can be detrimental. Investors should tune out the full cycle of marketing and 24/7 financial news and focus on keeping their investment strategy simple.
A few weeks ago I received a call from a woman who was in charge of a non-profit organization. She had roughly $1 million in the bank and wanted to get some kind of positive return on the money. It was important that the money was very liquid. She also wanted a very conservative growth. These goals were to preserve available cash and ease the burden of fundraising in the future.
She told me that she met an insurance salesman during some kind of weekend and he started offering her some complicated insurance products, including various annuities, as a solution to her problem. She didn’t understand anything he was proposing, but it sounded impressive, so she was almost convinced to give him the management money.
I explained to her about the products being offered, the costs involved and that she would be giving up liquidity, which was very important to her. He had other thoughts.
In an article for Morningstar on the complexity of investing, Amy S. Arnott, CFA, writes, “The mutual fund industry has grown into a more than $20 trillion behemoth, with more than 10,000 mutual funds and exchange-traded funds (not including multiple share classes) available to investors in the United States. Such exuberance is an embarrassment of riches for the average investor, but it doesn’t always lead to better results.
“Recent fund launches have become increasingly esoteric and niche-oriented: in the past three years, for example, fund companies have launched at least 139 funds focused on options trading, 53 leveraged equity, 39 digital assets (aka cryptocurrency ), 26 commercial reverse capital, 274 sector and 205 thematic funds. Not only can this range of options be overwhelming, but it often results in worse outcomes for investors,” she wrote.
While all of these options look amazing and will do wonders for your portfolio, the numbers tell a different story. Arnott cites data showing that this complexity has negatively impacted investor returns.
There is a well-known acronym in the business world called KISS – Keep it Simple Stupid. This certainly applies to investors as well. You don’t need to build a portfolio with 30 or 40 different assets. Having so many different assets makes it very difficult for an investor to keep track of each investment, potentially driving up costs and adding much more time to rebalancing.
There are advisors 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 generally we all agree that the best strategy is to keep it simple.
Don’t think that the more esoteric, the better the return. Save 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 the 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 in both the United States and Israel and assists people opening investment accounts in the US.