One mistake I see among many investors is the instinct to make things overly complex. I often get questions like this: “I have all my money in a target date index fund. Should I diversify by adding an S&P 500 index fund?” The answer is no. The S&P 500 is CONTAINED INSIDE your target date index fund. If you invest in both, you’re actually making your portfolio LESS diversified by overweighting large US stocks relative to there target value.

A target date index fund is like a combo meal at a fast food restaurant. It contains your burger, fries, and soda with a single purchase. Of course, you could order separately and that would be fine. Or you could buy the buns, meat, tomato, lettuce, potatoes, oil, carbonated water, and soda syrup separately. At the end of the day it’s the same food you’re consuming, but buying individually adds a ton of complexity.

For what it’s worth, I’m guilty of this! When I started investing, I did my research and carefully selected seven ETFs to give me a globally diversified portfolio. Many years later I did a portfolio backtest to see how I would have done if instead of investing in and managing seven different things I had done just ONE. Well, it was really close and actually the target date index fund outperformed. Probably because I tripped up along the way giving myself enough rope to hang myself with.

So avoid that tendency to want to complicate things. The simpler you can make it the better you’ll do long term. Put your effort into the things that you CAN positively impact. Notably, earning more and spending less. Then dump it all into a simple investment portfolio and leave it for many years. That’s how you get rich.

As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.

-Jeremy