When you hear the term ‘minimalism’, your mind probably jumps immediately to interior design or the desire to hit the road as a backpacker or live out of a camper van for an extended period of time.
However, such a narrow thought process negates the fact that minimalism actually represents a broad mindset, and one that requires you to declutter your life and the various decisions that you make.
Interestingly, this can also be applied to investment, as individuals focus on retaining a small number of valuable and useful assets while eschewing those that aren’t.
While this may sound obvious, building a successful minimalist portfolio is far easier said than done. We’ll explore this in the article below, while asking what principles should underpin this type of approach.
What are the Key principles of Minimalist Investment?
One of the fundamental principles of minimalist investment revolves around holding as few funds as possible, regardless of your portfolio size or capital holdings.
In practical terms, this means holding a few low-cost, broad-market index funds and sticking with these over time. Of course, this means researching markets carefully and maintaining a keen sense of determinism, while trading through a single brokerage site that offers access to a broad range of markets in the first place.
The central reasoning behind this approach is that once you’ve purchased the funds in the desired proportion and established dividends for reinvestment, there’s no real need to take further action other than to rebalance the account once or twice a year.
This also helps to maintain clarity of thought, as you aren’t jostling for gains in a number of markets or having to process huge swathes of analytical data on a daily basis.
This is also why you should consider only trading occasionally, as you look to keep activity to a minimum and eliminate all instinctive, frivolous and ultimately unnecessary trades.
On a fundamental level, this prevents you from investing for any purpose other than rebalancing your portfolio or ensuring that your asset allocation remains on track, while it also has the added benefit of reducing tax levies and commission costs over time (improving the efficiency of your trades in the process).
Should You Auto-Invest as Part of a Minimalist Strategy?
At first glance, a minimalist approach may seem at odds with the need to diversify your interests, but as we can see, it’s possible to minimise your number of trades while maintaining a broad and efficient portfolio.
It can also be argued that auto-investment can help to underpin minimalist trading, as it holds two distinct advantages in this respect.
Firstly, it negates the risk of you wasting time and energy on complex investment decisions each week, which streamlines your minimalist approach and once again prevents you from being compelled by human emotions.
Secondly, you won’t be tempted to time the market or make rash price movement predictions that can quickly undermine your portfolio’s value (especially when dealing in assets such as currency and dabbling in the forex market).
Above all else, automated trading can also continue to build your accounts incrementally over time, regardless of a particular market’s fluctuations or its wider conditions.