What’s a ‘Good Enough’ Financial Plan?

I was meeting a dear friend for coffee one morning a few months ago. She had suggested a spot equidistant to our two houses, telling me that she used an online tool to ensure that neither of us had to go further out of our way than necessary. When I got there, I quickly surveyed the coffee options and picked a cup of dark roast, my go-to. My friend, on the other hand, took a few minutes to make a choice. She peered closely at the menu and asked for a sample of the dark roast and then the light, tasting each thoughtfully. She proceeded to order a cup of the first one.

As I reflect on it, that little vignette is a perfect illustration of how “satisficers” differ from optimizers. I’m a classic satisficer: I’m usually quick about making decisions and often fall back on the tried-and-true. And that day, I was mainly there for the conversation; the coffee was secondary. Meanwhile, my friend is an optimizer, or maximizer. She carefully deliberates and analyzes almost every choice she makes, whether it’s a hotel in Paris, a new sofa, or a mug of coffee. If she recommends something or serves it in her home, she has invariably put it through its paces. I’ve followed her lead, and it has always been spot-on.

I received lots of wonderful feedback on my recent article about satisficing or optimizing your financial life. Several of you told me you were “recovering optimizers”—that, through experience, you had come to embrace a “less is more” philosophy.

Those exchanges got me thinking that we ought to be talking more about strategies to use. If you want to make decent, “good enough” choices about your financial plan and portfolio and get onto other things, what strategies should you employ? And importantly, what should you stop doing? Here are some of the key ones to embrace, along with my reflections on how I’m doing on my own journey to “satisfiction.”

Eliminate ‘Onesies’ and Embrace Simple Building Blocks

Step away from those individual stocks. Forget I bonds and laddered portfolios of individual Treasury Inflation-Protected Securities. If you’re a satisficer, they’re not for you. Not anymore. The name of the game is to reduce your number of accounts and the holdings within them. A portfolio with fewer moving parts is easier to oversee, and it’s also simpler to document in case your spouse, another loved one, or a financial advisor needs to take the wheel. Moreover, Morningstar research indicates that investors tend to do a better job buying and holding broadly diversified investments than they do ones that are more focused. While they might not compel over some shorter time horizons, total-market index funds have been highly competitive with actively managed funds on a long-term basis, and they require little to no oversight. That means that satisficer portfolios should be heavy on total market index funds and even all-in-one investments like target-date funds. Satisficers should have as few accounts as possible, too.

How I’m doing: My husband and I each have 401(k)s, but we use a single firm, Vanguard, for our IRAs and taxable brokerage account. We once held several individual stocks but are down to just a few positions with very low cost basis. We’ve decided those would be good ones for our heirs to inherit, or to contribute to a donor-advised fund. We still hold a few actively managed stock funds, though low cost basis is part of the issue here, too; selling would trigger a big tax bill. (Factoring in taxes is crucial anytime you’re decluttering your taxable portfolio.)

I’ll confess that I’m still struggling with not holding individual TIPS and I bonds during retirement. There’s something appealing about matching the bonds’ maturity dates to our fixed spending needs and benefiting from the built-in inflation protection that individual inflation-protected bonds offer. However, I’m not sure that I want to spend time calibrating our spending to the penny, which would be the starting point when determining how much to invest in each rung on the TIPS ladder. Holding short- and intermediate-term TIPS funds (or exchange-traded funds) should be able to get us reasonably close to the real returns that individual TIPS offer but with fewer holdings to monitor.

Minimize Other Financial Relationships

I’m part of a group chat with some delightful people who are keen to maximize their gains from credit cards and hotel loyalty programs; they’re always sharing tips on new card offers and swapping in and out of cards to score free travel. These people have traveled all over the world, and there’s something to be said for beating the banks at their own game. They’re also keen to take advantage of free financing programs when buying cars, furniture, and electronics. Why not let the bank float you a loan and invest the funds in the interim, particularly now that you can earn a decent return on your safe money?

Yet as much as the math might argue for such strategies, managing multiple credit relationships requires time, energy, and discipline that most people don’t have to spare. For that reason, taking a minimalist approach to credit cards and other financial relationships is a good policy for most households, especially satisficing ones. My credit-card-optimizer friends might disagree, but I tend to think that a single, well-chosen credit card or two is plenty.

How I’m doing: We’ve always used a single credit card, and we pay it off in full each month. We haven’t been inclined to open new cards in order to score more airline miles or other perks. We’ve arguably been a bit complacent, but I’m not worried. In the past, we’ve bought furniture and other big-ticket items with store credit cards that offered free financing, yet I was always nervous about missing a payment and triggering a big hit of interest payments. At this life stage, I’m not convinced those types of offers are worth the bother, at least for us.

Automate Everything You Can

The data suggest that dollar-cost averaging is inferior to lump-sum investing. To which I say, “So what?” The fact is, most of us don’t have big lump sums lying around; we’re able to invest only as we earn money and save it. Making automatic investments addresses a number of financial pain points in a single shot. It eliminates any question marks about whether and when to invest. And if the target investment amounts are high enough and you increase them as you receive pay increases and bonuses, it also obviates the need to track expenses or budget in the traditional sense.

How I’m doing: My husband and I have been dedicated dollar-cost averagers for years—into our 401(k)s, my health savings account, and our taxable brokerage account. In retirement, I’d love to find a system that automates our paychecks from our investment accounts in a similarly hands-off way.

Pay for Help if You Need It

Here’s another way in which the satisficers may be willing to depart from the optimizers. Yes, paying for financial planning guidance costs money, maybe more than you think it should. (It’s not unusual for good-quality planners to charge $350-$500 an hour or more.) But if paying for professional financial help frees you up to do other things you enjoy more and it provides peace of mind with your decision-making, it can be money well spent. Moreover, a planner can help point out blind spots that even the most competent DIYers may have missed, while also serving as a valuable receptacle of financial information in case you’re unable to manage your own finances at some point. Finally, planners can leverage high-powered software that puts more precision behind decisions like whether to convert traditional IRAs to Roth.

How I’m doing: I’ve written about how working with a financial planner has been a good decision for our family; our planner’s insights have probably covered what we’ve paid her, and she’s provided invaluable peace of mind and a built-in backup plan in case we’re unable to manage things on our own for any period of time. The key to a successful financial-advice relationship is paying for the amount of advice you really need. In our case, we didn’t want to pay for ongoing portfolio management, but we did want advice in a few targeted areas, so the hourly advice model was the right one for us. For other households, more-comprehensive advice could make more sense.