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How Simple Can You Get?

Do you find stock investing complicated? Time-consuming? Not worth the bother?

Do you find the world of mutual funds bewildering, with too many choices, too many outrageous claims, and too many big fees for iffy performance?

If you're here reading this, odds are that those statements don't describe you. But they might describe someone you know, a friend or relative, someone you've tried to help.

Some people just don't want to learn about investing. They find the numbers daunting, they've waited too long and don't want to face up to the problem, or they're worried they won't be good at it so they don't bother trying.

On some level, that's not a big deal. For some, stock investing is a hobby. People have other hobbies.

But in a world where your life after retirement depends on how well you invest now, some basic knowledge is critical. Really basic knowledge, like "Save for retirement!"

I'm not joking. Only about 63% of eligible employees participate in the average workplace savings plan, according to Fidelity Investments. Think those folks have big fat IRAs instead?

Think again.

I used to work for a big 401(k) provider, and part of my job involved consulting to huge companies, helping them figure out how to increase their participation rates and get those new participants engaged. It's very difficult to do. When we succeeded, it was usually for one (or both) of two reasons:

  1. We convinced the company to use automatic enrollment.
  2. We made things very simple.

The genius of simplicity
Berkshire Hathaway
(NYSE: BRK-B  ) CEO and investor extraordinaire Warren Buffett has been quoted as saying that simplicity is the highest level of genius. Certainly his investing career -- built on huge profits from investments in simple businesses -- reflects the genius of simplicity.

I am a firm believer that, for most people, simplicity is the key to retirement investing success. Wall Street makes a lot of money by offering us ever-more-complicated products and strategies, each one accompanied by breathless media stories and marketing messages assuring us that this product meets an essential need.

More often than not, that need is Wall Street's need for more fees -- and our need to feel like we're getting some sort of special advantage. We hear friends' stories about tripling their money with stocks like Contango Oil & Gas (NYSE: MCF  ) or Marvel Entertainment (NYSE: MVL  ) or (Nasdaq: BIDU  ) , and we want some of that glory too.

Of course, what our friends -- and the pros -- don't brag about is that for every success like Baidu, they also bought some stocks that fell on hard times, like Openwave Systems (Nasdaq: OPWV  ) or Washington Mutual (NYSE: WM  ) . Or fuel cell maker Hydrogenics (Nasdaq: HYGS  ) , which left me with a 50% loss a while back.

The truth is, you can beat the majority of the Wall Street pros with some very simple thinking. Odds are, you already have the tools you need to do it in your 401(k) or 403(b) plan at work.

Simplicity in practice

By now, you've probably figured out that I'm going to recommend index funds. And I am -- with low-cost index funds, you can achieve market-rate returns year-in and year-out without having to think about it.

Sure, buying an index means you'll own the losers as well as the winners. But even experts end up owning plenty of losers -- a very famous portfolio manager once told me he was lucky if half his stocks ended up making him money over time. The trick to his success was that his good picks were really good and his bad ones not too awful -- but you've got to be an expert to do that consistently, and you've got to put in some really long hours.

That's the hard way to do it. Buying the index fund? Simple.

Putting all your money in one broad market index fund is the simplest way to go. But you'll improve your returns and lower your risk if you own a few different types of index funds, and allocate your assets among them in a way that makes sense with your goals and time horizon.

That may sound a little less simple, but it doesn't have to be.

The Fool's Rule Your Retirement newsletter maintains a set of asset allocation models -- little maps, basically -- that show you exactly how much of what kinds of funds to buy. They were just revised last month, they're based on the best research available, and they're really simple to use.

They come with complete instructions that'll do everything but hold your hand -- and if you have any questions, just ask. Simple.

And to top it all off, you can get full access free for 30 days, with no obligation. Now that's really simple.

Fool contributor John Rosevear owns shares of Berkshire Hathaway. is a Motley Fool Rule Breakers recommendation. Marvel Entertainment and Berkshire are Motley Fool Stock Advisor picks. Berkshire is also a Motley Fool Inside Value pick. The Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has an elegantly simple disclosure policy.

Read/Post Comments (4) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 31, 2008, at 5:35 PM, macdtheknife wrote:

    Evidently you should have been talking to Kristm . He claims to have made what you lost . I guess he must have sold you somebody elses stock at the top.

    Maybe if you took some time to do some research. you might have had some CONVICTION and held on to HYGS as an investment. Probably would have been better that complaining to the world about YOUR mistake.

    There are plenty of us that have 200%+ increases. You're just a sore looser with a soap box.

  • Report this Comment On August 01, 2008, at 6:27 AM, TMFMarlowe wrote:

    macdtheknife, I'm not a sore loser, not at all. And if you read carefully, you'll notice I didn't bash the company (which, incidentally, I bought near $7 in 2001 and sold for about half that in 2005. I'm willing to be patient, but it was looking like dead money at that point.) I don't have any opinion on the stock either way right now... I haven't followed it in three years.

    I think you completely missed my point -- to put it simply and bluntly, 95% of stock investors make plenty of decisions that don't end up working out, and the other 5% are lying, usually in fits of macho chest-beating in online forums.

    Speaking of which, I'm glad you're enthusiastic about your investment in HYGS, but letting that enthusiasm carry into a sports-team-like need to defend your decision to invest with juvenile trash-talk in places like this is likely to interfere with your ability to dispassionately see what's really going on with the company and its prospects. That's NOT a route to long-term investment success... I've been there and done that myself, and that attitude cost me a couple hundred grand (no lie) in trades I waited too long to make back when I was younger and more hotheaded. I learned my lesson there. I hope you manage to learn yours less expensively.


  • Report this Comment On August 03, 2008, at 1:33 PM, macdtheknife wrote:

    Hygs has been it's own cross to bear. But I believe it's turned the corner.

    Regarding Sports Team. You fools started it. I just got sick of it. There have been 5 news release links that have all shown HYGS is none too flattering light and in my judgement have been superficial and somewhat ignorant. Generally you fools are regarded as short AE and using your soap box to your advantage.

    So you may think I look like a team player but maybe you guys look like a bunch of thugs. And frankly have been deminished for it. Rubs both ways.

  • Report this Comment On August 20, 2008, at 1:03 PM, TMFMarlowe wrote:

    All our positions are disclosed, right in plain sight. I don't know who's doing the "regarding" but if it's not laid out right here on the site it isn't happening. Seeing conspiracies where there aren't any is another side of the phenomenon I talked about above. Where did you get this idea?

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