Simplicity first

On 30 January 1999, John C. Bogle spoke at The Personal Finance Conference of The Washington Post in Washington, D.C. His speech was called Investing with Simplicity. In it he describes a paradox of the time: the more complex the world around you becomes, the harder you have to look for simplicity if your financial goals are to stay within reach. Then comes the sentence: “Simplicity is the master key to financial success.”

Bogle wasn’t arguing against saving, nor criticising any particular product. His point concerns two things that are easily confused: the appeal of a plan that looks thorough because there are so many layers on the page, and the work of first understanding the plain version in your own words.

With retirement savings, then, the test is whether you could explain the simple version. A projection with €85 a month and a larger figure later can look calm. It can also look complete, because extra lines, extra names and extra options share the same sheet. The harder question comes before that: can you say in one plain sentence what this plan does before all the add-ons? Or are you choosing complexity you don’t yet understand because the simple route looked too plain?

This is not yet a product conversation, and none of the figures are a calculation for you. What matters is understanding the simple version first: what you want to keep possible later, what you pay in regularly, and what remains open. CapitalPath deliberately starts with orientation: understand first, then decide.

Selma is 37 and has a salaried job. On Saturday morning a printed projection lies on her kitchen table: €85 a month at the top, as an example, and underneath it several extra lines, among them a second component, an option to switch and a name she can’t place yet. “Go for the fuller version,” a colleague told her. “That’s the serious one. The short one looks a bit thin.”

Selma is inclined to agree, mainly because the fuller version makes it look as if she has thought of everything. Then she tries to say in one sentence what the plain version would already do, and what the extra lines actually add, and she can’t. She doesn’t know which part is the simple plan and which part is complexity she hasn’t understood yet. Nor can she tell what on the sheet is an assumption and what would be fixed, or what she would no longer be able to change during those years.

She folds the sheet so that only the plain version shows and reads it again. On a note beside it she writes: What is the simple version, in one sentence? What do the extra layers change, and what do they hide? What do I need to understand before I add anything I can’t yet explain?