“There is risk and there is return. Everything else is just marketing.”

Ben Carlson on the surfeit of choice facing investors (and the advisors that work for them):

Obviously, it’s not just these huge wealth managers that have to deal with an enormous number of investment options. Here’s a quick rundown of what you’re up against:

  • There are 33,000 or so individual public corporations trading on global stock exchanges.
  • There are more than 9,500 mutual funds in the U.S. alone.
  • There are around 4,700 ETFs worldwide (2,000 or so in the U.S.).
  • There are around 10,000 hedge funds.

To put these numbers in perspective — there are 3,000 Chipotles, 7,000 Taco Bells, and 24,000 Starbucks locations worldwide. The problem is that you know what you’re getting when you walk into one of these establishments; that’s not the case with the wide variety of investment products.

The sheer number of choices we’re faced with is both a blessing and a curse.

One under-appreciated aspect of fiduciary advice is the elimination of superfluous investment options. Saying “enough is enough” to an investor could be just as powerful a service as opening up a menu full of choices might be.

As a shop, we’re not looking to be the piechart with the most slices. Reductivism is part of what we try to do when we explain our portfolios to clients and prospective clients. “You don’t need this, you don’t need that…” is a very enlightening conversation to have with individual investors these days.

Albert Einstein said ““Everything should be made as simple as possible, but no simpler.”

This applies as neatly to money management as it would to any other subject.

Often, when we’re sent brokerage statements from wirehouse wealth management accounts, we are literally stunned by the sheer amount of pages of holdings. It’s usually some version of what I call “mutual fund salad”, where ingredients are thrown into the bowl randomly over ten years until the point of meaninglessness. Sometimes, it’ll be pages upon pages of tiny trades in individual stocks – 27 shares of Coke, 19 shares of Google, etc – until the point where you can’t even see what it’s all in service to; the investment management equivalent of gaslighting.

Investors are often astonished at how simply we can boil down all of their holdings to a handful of simple exposures in order to show them what they’re really invested in. As my friend Rick Ferri says, “There is risk and there is return. Everything else is just marketing.”


Avoiding Filter Failure (A Wealth Of Common Sense)

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