The power of simplicity

Einstein, who gave us that exquisitely simple and beautiful formula e=mc2, ranked simplicity higher than genius. Henry David Thoreau, the 19th century American writer cum philosopher, once said: “Our lives are frittered away by details...Simplify, simplify.” Edward de Bono, the world's foremost living authority on thinking techniques, has written an entire book titled Simplicity. In life most of us don't adequately appreciate the power of simplicity. We are often enamoured of the ornate, the convoluted, and the obscure. Perhaps our education, which subconsciously instils in us respect for the complicated and the arcane, is to blame. It is only after we experience life at close quarters that we once again acquire the confidence to appreciate the beauty inherent in simplicity. As in life, so in the world of investment, simplicity can be a powerful weapon. First, it helps you avoid mistakes. In investing, mistakes cost you twice over. They cost you not just money but also time - time in which a better-constructed portfolio would have compounded and grown. And second, if you pledge to yourself that you will not invest in anything that you don't understand, you will save yourself a heap of money and trouble. First steps. If you are an absolute beginner who knows nothing about investing, here is a rudimentary financial plan that you could use to start off with. First, build up some liquid reserves for an emergency. This should equal at least three months' (ideally six months') salary. Keep this in your savings account or in a liquid

This article was originally published on September 06, 2010.