Know-It-All: How Many Digits of Pi Do You Know?

This morning I stumbled upon this funny, if crude, comic panel:

How many digits of pi do you know?

I think investing is like Pi in this strip. There is such a thing as knowing too much about investing, when knowing the basics will serve you just as well for most purposes. Some people really get a kick out of tweaking every last percentage point of gains from their retirement/investment portfolios. The extra percentage points can make a big difference in one's net worth at retirement, but the problem is that one is just as likely to foul things up by over-tinkering and come out with less than by leaving their portfolio alone.

Tried and true techniques like dollar-cost averaging (DCA) and index fund investing are good enough for the vast majority of "normal" investors for whom the habit of investing regularly is more important to cultivate than the ideal portfolio. Know-it-all investors (and financial advisers) can be downright rude and condescending to those who may know less about investing but who are cultivating proper and sound investing virtues.

Like any good philosophical debate, the debate about complicated investment portfolios will be an endless one. But also like most endless debates, the debate is entirely academic if there is no practical upshot to the debate. And the fact is that basic index fund investing and dollar-cost averaging are sufficient for most people to have the type of retirement they desire.

So how can one "Keep it simple, stupid" with investing? By saving and investing a percentage of your income on a regular basis. 10% is good, but 15% is better and 20% is better still. Put the money into broad market indexes like the S&P 500 Index (using passively managed ETFs or mutual funds) and keep it up over the course of your working lifetime. You will train yourself not to miss the money in the interim, and your money will grow substantially in the long-term.

If you fall in the "normal" investor category, then do not let the complexity of the know-it-all financial debates deter you from investing regularly. Yes, it can be very complex, but there is an elegant simplicity to the type of investing mentioned here. The single most important variable is your ability to develop, incorporate, and maintain the habit of taking a percentage of your money right off the top and putting it in your investment account. If you are successful in developing this habit, the rest of the details are like the digits of Pi after 3.14159.

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