When it comes to investing, there are countless complicated concepts, theories and strategies that people swear by. Yet there’s one principle that encourages you to keep things as easy to understand as possible.
In this article, we’ll explain how to apply the KISS principle in investing.
What is the KISS principle?
The Keep It Simple, Stupid (KISS) principle states that the most effective investing strategies are simple. This isn’t a new idea, nor is it exclusive to the investing world. It was first used by the US Navy in the 1960s to emphasize the importance of simplicity in effective operations, before being adopted in the financial industry.
What are the benefits of the KISS principle for investing?
The KISS principle offers investors several key benefits, including:
- Ease to understand: Complex investment strategies require significant expertise to execute successfully, whereas basic strategies are accessible to most people.
- Saved time: Simple strategies don’t require you to spend hours studying tactics or analysing markets, unlike complex approaches.
- Reduced risk: Sophisticated investment strategies are often riskier, whereas straightforward, proven methods are less likely to backfire.
- Lower costs: Intricate investment strategies often require fund managers who deduct fees from your returns, whereas most people can get everything they need from a simple, low-fee approach on a trading platform.
How to apply the KISS principle when investing
KISS is a versatile principle that you can apply to your investing strategy in a variety of ways, including via the following dos and don’ts:
Do:
- Create a strategy you can stick to
- Automate payments into your investment account
- Favour passive instruments like index funds
- Diversify your portfolio across a range of different holdings
Don’t:
- Try to time the market
- Borrow money to invest
- Check your investments too frequently
- Don’t hold too many different types of investments in your portfolio
Three common misconceptions about KISS investing
- KISS investing is only for beginners
While it’s certainly true that people who are getting started with investing find the KISS principle easy to grasp, even the most experienced investors can benefit by applying it to their investing strategies.
Investing legends Warren Buffet and Charlie Munger are perfect examples of this. Considered by many as the world’s greatest investor, they amassed their fortunes through the simple strategy of picking good stocks and holding them over the long term.
- KISS investing no research required
Many people confuse keeping it simple with picking stocks blindly and hoping for the best. However, the KISS principle only advocates for using a simple strategy, not neglecting to do due diligence while selecting investments.
- KISS investing is risk free
Investing in the financial markets will always involve a degree of risk, no matte how simple your strategy is. However, by keeping your approach simple you can mitigate the number of risks you’re exposed to, make it easier for you to understand them well and take effective measures to mitigate them.
In the often complex and intimidating world of investing, the timeless wisdom of the KISS principle empowers you to create a clear and manageable strategy. By embracing the power of simplicity and being consistent, you can move towards your financial goals with confidence over the long term.
