Tuesday, June 23, 2020

Investing Perfection

Perfect is the enemy of good. – Voltaire quoting an Italian proverb, 1770

In my career as an engineer/mathematician, I worked with some people who had trouble declaring a design “good enough.”  They’d want to keep tinkering endlessly.  They couldn’t stand to stop work knowing that some part of the design could still be improved.  This drive to tinker and improve things served them well in some ways and hurt them in others.

When it comes to investing, it’s a bad idea to get paralyzed seeking the perfect strategy instead of just getting started.  Perfecting your investment strategy is quite unimportant when you’re just getting started with small amounts of money.

I’ve been investing my money for decades now, and there’s never been a time when I thought I was doing it perfectly.  Sometimes I’ve just had a feeling I wasn’t doing something right.  Other times I knew exactly what I wasn’t doing well, but didn’t yet know how to improve it.

I’ve always been at ease with this situation as long as the “mistake” wasn’t too severe.  Fortunately, while my portfolio was small, mistakes weren’t too painful.  Paying high mutual fund MERs today would eat at me, but it wasn’t that big a deal when my portfolio was 5% of its current size.  I’ve given myself a pass for past mistakes and have never been in a panic to correct them along the way.

But this doesn’t mean I don’t bother to improve things.  As my savings have grown, I’ve figured out various improvements (reducing MERs with U.S.-listed ETFs, reducing foreign exchange costs with Norbert’s Gambit, improving my asset location strategy, etc.).  I learned about these things at my own pace and didn’t agonize over past inefficiencies.

This attitude makes it easier to learn new ideas.  If you have a strong emotional need to do everything perfectly, then finding a good new idea requires you to admit that your old ideas weren’t as good.  Some people prefer to defend the status quo rather than improve.  Often new ideas aren’t really improvements, but I like to remain open to the possibility of genuine improvements.

By being at ease with the fact that your investment history isn’t optimal, it’s easier to adopt good ideas.  It’s quite freeing to simply say, “what I’m doing now isn’t as good as I thought it was, and I plan to make improvements in my own time.”  For those just starting out investing on their own, it’s okay to learn as you go.

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