The Streamlined DIY Investor

As we grow our wealth and approach retirement, our finances tend to get more complicated and messy.

We have more credit cards, bank accounts, investment accounts, and more holdings inside our investment accounts.

One day we wake up, our finances are scattered, and we start to think about who’s going to deal with it if we can’t anymore.

Multiple accounts are often duplicative, making it harder to track spending and investment performance, monitor portfolios, and rebalance.

The irony of financial complications is that they don’t make us any wealthier.

Complication is a common but unnecessary result of wealth, much like excessive spending is a common and unnecessary result of a high income.

Messy finances can lead to spending on help (planning, tax, legal) or just spending more time managing our money instead of doing things that would make us happier.

Financial complication is a choice at each step: buy a vacation home, rent it out, invest in your nephew’s side business, open a third, then a fourth brokerage account while keeping the old 401(k) active.

Sometimes we believe ourselves, advisors, or peers that we should have more sophisticated financials the wealthier we get.

Some advisors use this tactic to sell insurance policies that produce excellent fees but lousy returns for clients.

Real estate and businesses can be fantastic long-term assets. But the trade-off is between wealth creation and extra anxiety or lost weekends with the family.

DIY investing and retirement planning should not be like a second job.

That’s why I’m an advocate for a ​​​95% boring portfolio​​​ that’s streamlined and optimized with only a handful of low-cost funds.

If you want to speculate, do so with only a small portion of your invested assets (the other 5%).

Instead of building a ​​spreadsheet of the Gods​​, use paid tools like ​​​​Boldin​​​​ and ​​ProjectionLab​​ that are designed for comprehensive yet casual planning and are 100X better than any multi-decade personal spreadsheet project.

Financial clarity helps us save time, optimize our portfolios, and maximize returns while lowering risks.

Complicated personal financials make it harder to maximize returns and easier to ignore mistakes.

Furthermore, uncomplicated financials allow for simplified estate planning and mental clarity in retirement.

“Sophistication” gives you more to think and worry about.

We become DIY investors for many reasons:

• Mistrust advisors
• Too cheap to pay for an advisor
• Want total control
• Or we just fell into the role

We shouldn’t do it because we need a hobby. Yeah, it can become a hobby, and we can enjoy it.

But a DIY investor’s job is to grow and preserve wealth, saving on fees by doing it ourselves.

Our careers and lives are already complex enough, and if we’re not going to outsource our investment portfolios, then it’s important to maintain financial clarity with a streamlined financial life.

It’s one thing to avoid the temptation to try new things and open new accounts. But what if your finances are already complicated, and you need to simplify things?

Consolidate bank accounts

• One checking account (same institution)
• One savings account (same institution)

Do you really need more? Maybe if you’re married and keep things separate, or if you like to keep more than the FDIC-insured max in cash.

But you can always put cash into a brokerage account, CDs, or money markets.

Fewer credit cards

• One for recurring expenses
• One for discretionary expenses

Maybe another for certain perks like travel rewards if you’re into that, like me. But aside from collecting perks, most of us only need one or two.

Automate your finances

Set up automations for bill payment or subscriptions through your credit card or bank bill pay. Opt out of paper mail.

Commit to automating your investment contributions through dollar-cost averaging into core holdings to sidestep behavioral biases.

Fewer accounts and subscriptions make this easier.

Consolidate brokerage providers

A lot of us have the bulk of our wealth with one brokerage provider. I primarily use Fidelity, but have accounts elsewhere for reasons I can readily make excuses over (business reasons).

I’m guilty here, and I’m slowly consolidating to do what I know is cleaner.

I’ve heard arguments about having multiple brokerage accounts in case trading volatility causes a broker to fail, so that your money is at risk.

I don’t buy this. There are protections in place, and if we end up in a world where Fidelity or Vanguard crashes and burns with all our money, we have bigger problems.

Consolidate brokerage accounts

• Traditional IRA per person
• Roth IRA per person
• Taxable account (individual or joint)

If you’re still working, a separate employer plan, SEP IRA, or Solo 401k may also make sense.

But when you stop working, you need no more than three.

Fewer holdings

Reduce holdings overlap. Vanguard’s VTI and VOO have about 80% of the same holdings. Pick one.

Hold fewer or zero individual stocks (too much time to research and monitor, guilty here).

In taxable accounts? You may need to sell carefully to avoid tax consequences if your income is below the 0% long-term capital gains rate threshold for the current year.

Five to ten mutual funds or ETFs can cover 99% of most DIY investors’ needs.

More accounts and holdings beyond that are excess complication.

Fewer investment verticals

Stocks, bonds, cash, and real estate are enough for most people.

More and more, alternative assets like commodities, crypto, and venture capital are easier to access and can play a diversifying role, though adding complexity.

That may be worth it for some, but they aren’t necessary.

BONUS: Streamline your home too

Declutter. Reduce possessions to focus on what’s most important.

If your house is full of stuff, it’s more to clean and organize.

Eventually, someone’s going to have to go through it all.

Will it be you, or a loved one?

Take responsibility for your possessions if you’ve accumulated too much stuff over the years.

All that clutter in your home ​​​used to be money​​​.

Start now. Clean out the drawer, closet, shed, garage, or basement storage room.

Enjoy your retirement without the burden of excess stuff.

Featured photo via DepositPhotos used under license.