Nobody's (forced to be) perfect — Mathieu Bouville, PhD

Is spending more quality time with your investments really going to make you earn more?

The 80–20 rule

According to the 80–20 rule, 80% of the outcome comes from 20% of the work. Beyond that, you nitpick, you split hair, and you will hardly make any improvement. The 80–20 rule means that it is important to focus on the 20% that count, and that you can forget about the rest. In particular you can focus on strategy and forget about tactic. The vast majority of the gross return of active funds comes from the index performance and a small part from the idiosyncrasies of the fund (but 80% of the fees pay these 20%).

A practical consequence is that you should not lose your temper, your time or sleep over trifles (that is to say the 80% that account for only 20%). Once the 20% that account for 80% are in place, you have done 80% of the work (by doing just 20% of the work). So the 80–20 rule is a perfectly clear rule (provided that you read the sentence a few times).

Note that one generally talks of the 80–20 rule, but some prefer to speak of the 90–10 rule (if doing only 80% of the work seems like slacking then go with the rule 90–10). In fact, in terms of investments, at first it is probably an 80–20 rule, but then it would rather be 95–5: you will probably do as well as those who devote twenty times as much time to their investments.

Investing is easy

The corollary of the 80–20 rule is that investing is easy. Indeed, you only have to do 20% of the work — that should not tire you too much.

You establish your asset allocation, without nitpicking over hundredths of percents (in any case, a portfolio with 67.43% in stocks will make as much as one with two-thirds of stocks to within a fistful of dollars);
you find mutual funds with low fees without losing sleep because the one you found charges 0.25% a year but there might be one at 0.23% (as long as you do not pay 1.25% or 2.25% a year in fees);
you do the same with the fees of brokers (and other wrappers) — you find one that is cheap, without wasting your time trying to save pennies;
you maintain your allocation over time without paying excessive fees (but do not bother going for a perfect match at all times either).

And, corollary of the corollary, you only pay for financial advice you really need (since the rest is simple).

It's simple, quick to implement, and it returns as much as more complex investments. When I say that it returns as much, it is because I apply the 80–20 rule myself, I simplify: in fact it probably returns more. Because what is important was well done, and what was neglected was truly negligible. Because devoting less time to it often means fewer transactions (hence lower costs) and a lwer risk of panicking. Because not trying to beat the index means not spending money to speculate.