Perfect is the Enemy of Good 12/28/2023

Hello NFC Clients and Friends,

“The perfect is the enemy of the good.”  I believe I first encountered this profound insight many moons ago after reading Barry Schwartz’ book, The Paradox of Choice.  Our world of ever-increasing choices may have spawned another aphorism, “paralysis by analysis,” which the author ably elucidates in the world’s worst dressed (?), but certainly intriguing TedTalk.  Perhaps you experienced some of the stress this can cause when Christmas shopping before falling back into the comfortable rationalization that it is “the thought that counts.”  Although Clark Griswold in Christmas Vacation seems to challenge this assertion.

When it comes to investing, we are bombarded with choice.  In fact, while there are 3,611 publicly traded stocks in the U.S. alone,  our land of opportunity offers 7,393 mutual funds and 2,702 ETFs (exchange traded funds)!  Who has time to sift through all of this noise?  The good news– we do not have to!  We just have to get started, get automated, and get committed to a plan.  Once you launch in the right direction, you can always course correct along the way.  

        J.L. Collins’ The Simple Path to Wealth (gift to all NFC clients) provides: 1) an excellent road map, 2) key behaviors for a successful journey, and 3) selects an investment vehicle for success— the Total Stock Market Index Fund.  But even here there is additional choice!  Do we use Vanguard’s index fund (VTSAX) as the author suggests, or the exchange traded fund (VTI)?  Furthermore, there are many custodians besides Vanguard who offer similar products, like Fidelity whose ZERO Total Market Index Fund (FZROX) boasts a 0.00% expense ratio!  So which vehicle do we choose?  The answer— it doesn’t really matter!  What matters is that you get started, automate your contributions and stay committed to the long-term journey, like John Candy and Steve Martin in Planes, Trains, and Automobiles.  

       The best time to plant a tree was 30 years ago. The second best time is now!  One of my NFC clients had a cash position that had been piling up for years in both taxable and retirement accounts before making the decision to invest in Fidelity’s FZROX in the first week of November, 2023.  Why Fidelity?  Because that is what is available in his 401k, and because he already has an account open with Fidelity for a rollover IRA.  Sweating the choice between an index fund with 0.0% maintenance fees (FZROX), 0.04% (VTSAX), or 0.03% (VTI) is wasting energy and time.  For those of us guilty of obsessing over optimization, or hung up on the math, I offer you the Pareto Principle to reassure you that your behavior– living on less than you make, saving, giving, and investing the difference in low cost index funds over long periods of time— is what truly makes the greatest impact on your financial fitness.  Choosing one index fund over another to squeeze out an extra basis point or two in fees is simply a rounding error.

        Not only has this client’s investment shown significant capital appreciation in the short time since (thanks Santa Claus rally!), but he also received a nice dividend this month which was reinvested automatically (DRIP), increasing his share total, and consequently his next dividend payment and reinvestment.  While the timing of this decision was quite fortunate/lucky, it is time in the market that matters far more than timing the market, which is always a fool's errand.  And even if you retire early (whatever that means for you) your invested money will continue growing for years/decades that follow, outpacing inflation and maintaining your purchasing power.

        The journey is not smooth or predictable as we can see from recent years (remember 2022!?) but thanks to the stock market's upward bias, if we stay the course we will reach our destination despite the bumps in the road.  The key is to get on the road in the first place, even if we are not sure what vehicle to use.  I should apologize for the vacillating metaphors in this post (or better yet fix them!), but that would be in a pointless pursuit of perfection at the expense of the good.  Or in this case the decent, I hope.

     I hope everyone had a Merry Christmas, a Happy Hanukkah, and wish you all a happy New Year! 

     Yours in Financial Fitness,

     David   

  Norman Financial Coaching