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How To Declutter Your Investing Strategy

An investment portfolio is a series of decisions that can lead to financial security, but it can quickly become a complicated mess without careful consideration. It will involve many choices with mutual funds, bonds, stocks, and other investment opportunities. 

A wrong decision can lead to a portfolio crash and loss of investment funds. That’s why it’s important to understand how to simplify your investment strategies, so your results are as you expected.

Investing does not have to be complicated. That’s why we’re sharing several ways to un-complicate your investing strategies and lead to better results. 

Setting Goals

If you want to learn how to simplify your investments, start by making clear goals. 

This first step involves considering both short- and long-term goals, and how they fit into your overall financial plan. Use this guideline to simplify your strategy and make informed decisions.

  • Setting goals provides a timeline for investments.
  • Are you looking for something to pay off in the next 20 years or the next 20 days? 
  • Are you saving up for retirement or building a foundation for a college tuition? 
  • Operating with an end-date in mind will help you in creating terms and parameters for your investments.

Adapting To The Market

Make investing easy for yourself by adapting to the market. The process is not the same as it was 20 years ago. Investment firms make it simple by handling everything, and sometimes the entire process happens online. You choose the investment opportunity, like an S&P 500 Index Fund, leave it for 20 years, and the idea is to return to a small fortune.

Other brokers have further simplified the process. They’ve eliminated commissions on exchange-traded fund (ETF) trades and equity, and trimmed down on obvious investment expenses. 

However, don’t take the simplicity of investing as a sign that it’s easy. While the process is simplified, the choices are not. The number of investment choices can be the factor that makes or breaks your investment portfolio.

Dodging Hidden Costs

A common pitfall people make with investing is the failure to consider the hidden costs. One of the major costs people miss is taxes on investments. Poor investment performance can also interfere with your financial goals.

As you move towards utilizing investment funds, the stakes only get higher. The best way to simplify this aspect of investing is to reset your thinking. This might lead to changes in how you invest for retirement or other areas. 

Just as you go to the doctor for regular checkups to evaluate health concerns, you want to do the same with your investment portfolio. Regularly revisiting your investments and their health will help keep you out of financial trouble.

Index Fund Investing

The financial world is rife with investment opportunities and options. One option integral to any investment portfolio is investing in index funds

This is a portfolio of bonds or stocks crafted to mimic a financial market index’s performance and composition. These are typically a good option because they have lower fees and expenses than an actively managed fund. Index fund investing allows for passive investment, reducing the need for involvement and oversight.

When it comes to how to simplify your investing, this is a good option. Since it is hands-off, you can easily build a diversified portfolio with statistically solid returns. The funds do not aim to beat the market, which is where most portfolios fail. Instead, it mimics the highs and lows of the market. It can bring balance to your portfolio and is an indirect way to buy the entire market.

Swap Active For Index

One way to simplify investments is to trade actively managed funds for index fund products. Basically, you’re trading one type of investment for another. 

Passive investments require little supervision because they have no key-person risk or strategy concerns. It might seem that Index products do not make you competitive in the market, but why take the risk?

There are several highly rated passive funds within major investment categories. The variety here allows you to choose between growth and value stocks, company size, and various bonds. You have a lot of choices to make, but it’s a streamlined process. 

All-Market Funds Vs. Specific Equity

Expert opinion decrees the need for intra-asset class diversification. With the variations within the market, it is difficult to tell when growth stocks will lead versus value. 

So, the idea is to play into all the options. Once you add in small and large-cap performance and international versus domestic stocks, this becomes a quick route to a complicated portfolio. You can easily find yourself stretched between small and large-cap funds, growth funds, and individual value, and possibly international markets.

That’s enough to make your head spin—but is it necessary? Do you need these various investment types for a diversified equity portfolio? Why not have one or two broad-based funds?

It is possible for certain index funds to grant the diversification touted by experts. You can easily pair the Vanguard Total International Index with the Vanguard Total Stock Market for exposure to the global stock market. Two funds, but ample diversification.

Some actively managed funds can also do this. Consider investing in funds that meet more than one criterion to limit the overall funds you’re in. For example, funds in the World Stock category would hit both domestic and international stocks in one swoop.

Delegating Asset Allocation

If you’re not looking for direct control of your investment portfolio, consider delegating your assets through a balanced or target-date fund. Both will combine bonds and stocks in one portfolio, providing simplification and reducing the necessity for oversight.

Balanced funds will typically be a target bond/stock mix. They have different levels, including:

  • Conservative blend (15% to 30% in equities, rest in bonds)
  • Aggressive blend (more stocks than bonds)
  • Moderate blend (somewhere in-between)

Target-date funds do not rebalance like balanced funds. Instead, these funds consist of an age-appropriate mix and generally become more conservative over time. 

The equity stake decreases while the bond position increases. The idea is to select a date near your ideal retirement and maximize the funds by that target date.

Another way to delegate asset allocations is through exchange-traded funds or ETFs. These funds are group asset purchases that are then traded together. They can be bought and sold just as stocks can, creating an easy management process. It allows for instant diversification while maintaining low costs.

If you need to streamline your portfolio, consider ETFs.

Dollar-Cost Averaging

Typically, financial investments are something you will regularly contribute to over a long period. After all, you can’t expect to save enough for retirement in just one year. One way to maintain investments is through dollar-cost averaging

This is where you invest the same amount each month, and then the amount is divided into asset allocation. Most of the time, you work with professionals to handle your monthly investments.

Dollar-cost averaging eliminates the need to determine how much goes to which fund or bond. Instead, you set a predetermined amount and then watch it be split as such each month. You can make investments automatically, which makes the whole process more efficient. 

Dollar-cost averaging allows you to utilize your dollars no matter what state the market is in. You jump into autopilot by continuously contributing a set amount each month without the constant weighing of market trends.

Reducing Holdings

Every entrepreneur must accept that personal life events will complicate investment pursuits. The growth of a family, needs of a job, and other demands can lead to a juggling act with multiple portfolios and goals. You might end up running various accounts as separate entities. While not unusual, it can lead to a sprawl that’s difficult to manage.

Instead, try to group accounts under a single overhead. This might require cutting back on holdings to reduce monitoring. This cull will allow you to identify what is most lucrative and applicable to your goals.

As you evaluate holdings, think about why you have them. Write down the following information, so you don’t forget it:

  • Why did you make that investment?
  • Why do you continue with the investment?
  • How does this fit into the goals you made at the beginning of the simplification process?

If the answers are not satisfactory or conducive to your goals, cut it out. This also helps you develop discipline as you learn to evaluate your financial choices critically and remove emotion from the equation.

Conclusion

Investment portfolios are best served through a streamlined and simplified approach. After all, a portfolio short with investments but high in confidence will be better than one subject to volatile market whims.

Building this simplified portfolio is easier said than done. When your financial portfolio is easily complicated through 401(k) plans, IRAs, 529s, and other taxable entities, you’re left with a mess to deal with. 

However, applying a few of the approaches listed here will help you simplify your investment strategy. You’ll reduce the effort that goes into the investment process and be able to focus more on what matters most: where your money’s going. 

Author: Chris Muller

Chris Muller is a professional personal finance writer who has written for some of the largest financial publications in the world. Chris brings a BBA and MBA in Finance, along with a decade of experience in the field, to help break down complex financial topics into easily digestible pieces through his written content in an effort to assist others in better managing their finances. Chris is currently in pursuit of FI/RE, is an aspiring minimalist, loves craft beer, and is a dad two to kids.

Comments

  1. Love it. Decluttering is just as applicable to investments as it is physical possessions. I felt so much better when I sold off my individual stocks and just went with a split of three index tracking ETFs.

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