Keeping Investments Simple Can Produce Great Results

One of the top goals for any investor should be to keep their investment portfolio as simple as possible.

It is an easy goal to have but a difficult one to achieve, given that the market continually stresses the excitement and novelty of new investing opportunities.

Whether it be private credit, infrastructure, hedge funds, cryptocurrencies or private equity to name just a few, the temptation to split your investments across a greater number of asset classes and new opportunities is difficult to resist.

However, there are many advantages to keeping your portfolio really simple–the main one being that it is so easy to follow and understand and to also follow established asset allocation rules.

Model ETF Portfolios Outperform

One example of a simple but effective portfolio would be a spread of 80% growth and 20% defensive using five exchange traded funds: Australian shares, global developed market shares, global emerging markets shares, Australian bonds, and gold.

Thanks to an exceptional performance by gold, this sort of sample portfolio produced returns above 18% in 2024-25–well above the majority of Australia’s large superannuation funds, which were mostly closer to 10%.

Admittedly gold exposure pushed the portfolio into those higher returns but that is hardly an exotic or unexpected investment compared to many of the unlisted and higher fee options pursued by many super funds.

Long-Term Diversification and Low Fees Work

Looking at the same model portfolio over longer time periods of five or ten years it also outperformed many super funds as well, largely because of strong diversification and lower fees thanks to the passive approach of using ETFs.

Most active strategies pursued by super funds and investment managers produce higher fees, particularly if you add in features such as investment platforms used by investment advisers that add in another layer of fees.

Using such a simple approach is ideal for long term investments such as superannuation and can be used through many of the self- directed investment options offered by major super funds or through an SMSF.

There is plenty of evidence that passive, simple approaches work over time, with the latest S&P SPIVA results showing that in the 15 years to the end of 2024, fewer than 15% of active funds managed to beat the market.

A small portfolio is also easy to follow and understand and also to rebalance when required to keep asset allocations within set parameters and thus lock in some profits from sectors that have boomed – gold being the obvious one in the past year.

Resisting the Siren Song

The siren song of active management, star stock pickers and complex and opaque new strategies is always tempting.

After all, how could an amateur hope to outsmart these active managers with their spreadsheets, confident predictions and constant searching for the next big thing?

Well, the numbers don’t lie and time and again simple, diversified approaches that give low-cost access to match overall market growth produce excellent results and in the long term are likely to be in the top 15% to 20% of returns.