My grandpa loved inventing contraptions. He was always looking for an easier way to do things. One of his more popular inventions with the neighborhood kids was his ice cream maker. Long before the invention of automated kitchen appliances, making homemade ice cream required turning a hand crank mixer for about 30 minutes. Grandpa would rather read the paper than turn the crank so he came up with an idea.
In his garage he had an old Model T Ford. One day he put the back of the car up on jacks. He took the ice cream maker and mounted it to a wooden box so that it would stay in place. Wedging the handle of the crank inside the spokes of the vehicle’s wheels, he would start the car and let it idle slowly. As the wheel turned, the crank would stir the ice cream. I still have a picture of grandpa reading his paper while the ice cream was mixing. Now, the picture is cute and the invention was so much like Grandpa, but as I look at that picture I can’t help thinking, wouldn’t it have been easier just to turn the handle yourself? Or better yet, you might convince a grandchild to turn it. In his clever attempt to simplify a task, he had actually made it more complicated.
It is not uncommon in financial planning to find portfolios that are unnecessarily complicated. Some get that way through neglect, not unlike how a garage gets piled up with junk over the years. Others may have been over-designed by computerized planning programs. Some are the result of an investor or advisor who can’t seem to make up their mind so they just buy a little of everything. Whatever the reason, overly complicated portfolios are not only unnecessary but they can add risk by creating a situation that is difficult to keep track of. I find it fascinating that some of the most successful fast-food chains are the ones with the least number of selections on the menu. They only make a few things, but they make them very well. Thus it is in creating an investment portfolio for your family. Having fewer investments that you understand well is often a better option than owing a bunch of stuff you can’t keep up with.
Investing, like ice cream making, requires certain skills to get it right. But sometimes, like my Grandpa, advisors get carried away in a maze of complicated ideas when some simple common sense solutions will get the job done better. In your investments, stay focused on your goals and what you believe will most likely get you there. Do not own more investments than you, or your advisor, can reasonably keep track of. A wise CPA told me that his most successful clients kept their investing relatively simple, sticking with a manageable pool of investments that they were able to follow more closely. Grandpa made great ice cream, but with a little less complication we would have been eating it much sooner.
Dan Wyson, CFP® is a long running national financial columnist, author of several books and CEO/Founder of Wyson Financial/Wealth Management 375 E. Riverside Dr. St. George, UT 84790 – 435-986-9525 Securities and Advisory services offered through Commonwealth Financial Network, member FINRA/SIPC, a registered investment advisor.
