Are You a ‘Yo-Yo Diet’ Saver? Time for Simple Investing

Let’s talk simple investing tricks: You probably know this person. Perpetually overweight but always on a diet. Reads stacks of books on healthy eating. A closet crammed with workout clothes but never at the gym.

It’s not hard to understand the problem: All interest, no commitment. The diet industry loves this person because he or she is a lifelong customer. If they actually lost 20 pounds permanently, then why buy more books, clothes and diet plans?

The simplest piece of advice for this person is just to start walking, a few miles every day, and put less food on your plate. Problem solved.

The investment media works exactly the same way. Television and the Internet are a constant drip of nearly useless information. It thrives on doubt and confusion and hawks overly complex financial products to pay the bills: funds with high fees, trading platforms with bells and whistles even the pros don’t use, interviews with CEOs who have no more perspective than the next guy.

The trouble with all this media noise is that it tends to affect prices negatively in the short run, while stocks are uncertain (that is to say, volatile) over the long run, too.

Of course, the larger problem is that people pay too little attention to saving and retirement altogether. They either buy into the notion that someone else will take care of it (Social Security, a pension if they have it) or that “their ship will come in” (in the form of an inheritance or the lottery) or, most perniciously, that things just get better and better over time.

That last illusion is the dangerous one. Far too many people fail to save and then find themselves downsized at the height of their earning capacity, never to recover.

Or they save enough but let their investments careen from risky bet to risky bet, hoping to build a nest egg on the backs of legions of “bigger fools” in the marketplace.

Like diet and exercise, retirement saving is a lifelong endeavor, a habit more than a single decision along the way. Simple investing is daily investing.

Similar to eating less and moving more, the trick to retiring on time is to save without thinking. You can do simple investing by automating withdrawals from your pay into a retirement account. By dedicating raises to saving more. And by spending less.

After that’s set up, the only thing left to do is…nothing.

Back to simple investing

Well, not actually nothing at all. Two problems begin at this stage, doing too little and doing too much.

Doing too little is putting your cash into a money market or CD and letting it sit for 20 years. Inflation will ensure that you lose money with this plan, but it happens to some.

That’s why, increasingly, 401(k) plans “default” into target-date funds that programmatically buy a mix of stocks and bonds based on your age and retirement target.

Then there’s doing too much, the investment equivalent of yo-yo dieting.

Years of research have shown, and investors are starting to realize, that the more active you are as an investor, the more likely you are to throw away gains the market will hand you simply for being patient.

As to what to buy, the answer is much like good dieting choices: a selection of assets in reasonable portions, each designed to provide the right nutrients to the parts of your portfolio that need it.