I can remember when I first came into the industry about 12 years ago there were about 2000 different funds. The FTSE 100, FTSE 250, FTSE Small Cap and thousands of direct equities. I remember thinking how can anyone make sense of all of these options and how does anyone know what to buy?
For anyone trying to work out the best way to invest their money, they often find that the more they can understand over time, the more the investment industry will throw new information out there adding to the confusion, especially for an investor trying work out how to make a start.
Adapting Information Strategies:
Fast forward 12 years and I’m still asking myself the same questions and having the same debates. For someone like me who deals with investments every day, whose job it is to stay ahead of the curve by taking on as much new information as possible - analysing blogs, journals and other finance media – I have to ask myself again, ‘how can anyone deal with such large amounts of new information?’
Life continuously presents us with options on a daily basis that challenge us to make decisions, no matter how large or small and on a regular basis. Strategies naturally adapt themselves to deal with these situations and can be modified to help tackle some of the more pressing questions in life that we might have to answer.
Too Many Choices:
A gastro pub menu works as great metaphor for choosing an investment. You are sat down at the table and it’s time once again to make another commitment, based on the large amount of information in front of you. There are about 15 starters, there are probably about 20 mains and the dessert menu is going to come out and start this process all over again.
My own response in this situation is to quite often not even know where to start, so to make life easier I look at what everyone else is ordering and have what they are having. Often I find it more straight forward to order the same than to deal with literally all of the information on the menu. I’m well known for this with my family, but I know they have good taste and I trust their judgement.
When it comes to money, more information isn’t always a good thing. With so much free online content the task of filtering through it all doesn’t always create a clearer picture and more often than not potential investors become stalled with a typical case of information overload. Along with this and the fact that dealing with money can be one of the toughest things you can do – this can potentially result in doing nothing at all.
1) Simplify the Menu
From a standing start, with a towering amount of information in front of you, go back to the menu and simplify it into ‘what do I want & what don’t I want’ and immediately you will have condensed your choices down into something more manageable and you can then quickly identify what has the most important attributes that are of value to you.
2) Low Cost, Best Value:
Investment is an industry that is known for bombarding its customers with information whilst at the same time being opaque about its charges. A good example of this is that there are plenty of low costs funds out there that are doing just as well as the active funds that people have been buying expensively for years. Finding low cost, best value choices from your simplified menu is the final step in the selection process. For anyone that is in their 20s and 30s (like me) would fine worse places to start than this article on passive investing; Monevator's 5 reasons why you will love index investing
3) Stay the Course:
Again, over time information will come at you, it will sway your opinions and make you think. One of the most important things about investing is actually staying the course. It’s the behaviour of putting the money in, following the plan and actually following it through that I see as being one of the most important aspects of being successful at growing you money.
If this rings true with your current situation Brian Bloch has written an excellent and concise article well worth reading on recognising, avoiding and dealing with information overload.