KISS Principle In Investing: How Does It Work And What Are Its Benefits?

With many choices of investment instruments, modes of investments, service providers, etc., available today, it’s easy to get confused. For instance, mutual funds, insurance, stocks, and fixed deposits offer many investment options but often create a dilemma of the best suitable option. Managing large documents and keeping records updated becomes more challenging as one ages, and even for younger investors, it can be overwhelming. Here, the KISS strategy can offer relief.

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What is the KISS rule of investing?

Originally called ‘Keep it Simple, Stupid’ (KISS), the phrase has since evolved, with some interpreting it as ‘Keep it Super Simple’ or ‘Keep it Simple and Short’. However, the essence remains the same regardless of the variation.

This rule can be applied in any sphere of work. The idea is to keep things simple and prioritise decision-making. Though it originated in the engineering world, the concept can also be applied to investment. This principle advocates a simple investment process to help avoid unnecessary risks.

How Does The KISS Principle Help?

While having multiple options offers flexibility, it also creates decision-making challenges. With age, consolidating bank accounts, credit cards, investments, etc., becomes crucial to keep them manageable. Planning for this early helps prevent complications later on.

What Does The Principle Work?

It advocates simplicity and ease to understand processes. It encourages mitigating risks by investing in instruments one understands rather than mindlessly diversifying the investment portfolio. Another critical aspect of KISS is investing in well-understood and manageable avenues.

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Why Can Senior Citizens Use This Strategy To Manage Finances?

This principle serves as a useful guide for all investors, whether they are senior citizens or younger individuals, and can be easily followed. Here are some points to consider:

Simple Strategies: As a person ages, particularly after retirement, risk-taking capacity declines. So, according to the principle, invest in assets you understand and can manage yourself rather than depending on others.

Avoid Complex Instruments: Avoid complex investment instruments and invest in those that you understand. For example, derivatives or futures and options are complex and risky instruments. So, without proper knowledge, these instruments can be risky.

Choose Simple Instruments: Choose investment instruments that are transparent and unambiguous. KISS can be easily applied to insurance products where the rules are laid down but ambiguous, and investors sometimes confuse insurance with investment.

Keep Diversification To A Manageable Extent: There is a stone-inscribed rule for diversification and its limits. Experts suggest the proportion between equity and debt depends on age, mindset, and risk-taking abilities among many other factors. It is a personal choice. While diversifying a portfolio is good for mitigating risks, this principle advises avoiding over-diversification.

Understand Your Investments: The KISS principle helps reduce unnecessary risks, provides clarity, and allows for better decision-making by focusing on a manageable number of investments. Keeping investments limited to instruments you understand doesn’t mean compromising on returns. Instead, the aim is to avoid being overwhelmed by complex instruments and strategies, adhering to the simple yet effective KISS rule of investing.