The Simplicity Investing Principle
Complex investments exist to profit their creators, not their buyers
The Simplicity Investing Principle is Collins' overarching philosophy that simple investments are not just easier but objectively more effective than complex ones. He systematically dismantles the assumption that sophisticated investment strategies, diverse asset classes, professional management, and complex financial products produce better results. The evidence consistently shows they produce worse results while charging higher fees.
Collins demonstrates this through multiple data points: 82-99% of actively managed funds underperform their benchmark index over 15-30 year periods. The average mutual fund expense ratio of 1.25% versus VTSAX's 0.05% means investors in actively managed funds are paying 25 times more for inferior performance. There are actually more mutual funds (4,600) than publicly traded stocks (3,700), a proliferation driven not by investor need but by the profitability of fund creation.
The principle extends beyond fund selection to the entire investing process. Collins argues against complex asset allocation strategies, frequent rebalancing, international fund diversification, commodities, currencies, and any strategy that requires ongoing attention and expertise. His two-fund portfolio (VTSAX for stocks, VBTLX for bonds) or even a single Target Retirement Fund outperforms the vast majority of professional and amateur investors while requiring almost zero effort.
- Complex investments exist only to profit those who create and sell them
- Simple investments outperform complex ones because they cost less
- The more you watch and fiddle with your holdings, the less well you are likely to do
- There are more mutual funds than stocks, a sign of industry profit motive, not investor need
- An expense ratio difference of 1% can consume 25% of your retirement income
- The financial industry thrives on making investing seem complex enough to require professional help
- If you cannot be Warren Buffett, keep your feet on the ground with indexing
- Audit your current investment complexity and costsList every investment account, fund, and holding you own. Calculate the total expense ratios you are paying. Identify any advisory fees, trading commissions, or performance fees. Most people are shocked by the total cost once they add it all up.
- Consolidate into one or two low-cost index fundsReplace your collection of funds with VTSAX for stocks and VBTLX for bonds. If even that feels like too much complexity, use a single Vanguard Target Retirement Fund. Your total expense ratio should be under 0.20%.
- Eliminate financial advisors and active managementCollins argues that by the time you know enough to identify a good financial advisor, you know enough to manage your own investments. The simple approach in this book requires no professional guidance. The fees you save go directly to growing your wealth.
- Stop consuming investment media and adviceCancel investment newsletters, stop watching financial TV, unsubscribe from stock tip services. None of these improve your returns. Most actively degrade them by tempting you to make changes that reduce performance.
Collins recalls a martial arts instructor who advised: 'Before you decide to use kicking techniques on the street, ask yourself: Am I Bruce Lee? If the answer is no, keep your feet on the ground.' Collins extends this: before trying to pick individual stocks, ask yourself 'Am I Warren Buffett?' If the answer is no, keep your feet on the ground with indexing.
Collins spent decades as an active investor trying to beat the market through stock picking, fund selection, and complex strategies. He lost $50,000 on a gold mining penny stock. He spent years trying to pick investments that would outperform the basic stock index. Eventually he accepted what Jack Bogle had been demonstrating since 1976: the more complex an investment, the less likely it is to be profitable. When Collins finally embraced simplicity, his results improved dramatically while his stress and time investment dropped to nearly zero.