Dimensional vs. Indexing
Re-posted from Forbes.com
Tim Maurer , CONTRIBUTORPersonal finance is more personal than it is finance. Opinions expressed by Forbes Contributors are their own.
As technological innovation marches forward in so many aspects of life, there is a movement gaining momentum to return to the past in search of something important that progress may have left behind.
No, you can’t beat the convenience of streaming and digitized music, but the listening experience still falls short of dropping the needle on a vinyl record. Similarly, while the ubiquity of tech-driven tools may make the process of managing our time easier than ever, we may actually end up increasing our productivity by decreasing efficiency through an analog, manual, pen-and-paper system.
Personally, I’d been successfully employing a time-management system for years—a simplified, customized amalgamation of David Allen and Steven Covey’s wisdom—designed using the online tool Trello. As someone who believes our most valuable investment is time, however, I was still curious when a friend I respect told me about a new system that he’d been using effectively. But when I invited him to show me, he didn’t pull out his phone or tablet, but a simple journal—a Bullet Journal.
The Bullet Journal is a product, but it’s also more than that. It’s really a modifiable productivity method that has grown into a community. The system, interestingly, was created by a digitalproduct designer, Ryder Carroll, as a way to bring the discipline of task management under the practice of mindfulness. After testing out the system for a few months—and becoming an adherent in the process—I discussed the inspiration for the Bullet Journal with Mr. Carroll.
While how, exactly, I’ve adapted the Bullet system in my work as a financial advisor, writer and speaker—including the specific journal and writing tools I use—does make for an interesting story, today I’d like to address the bigger question:
Why take more time? Why sacrifice the ability to sync between devices? Why go back in time? Why go analog?
1) An analog process that takes you away from your computer is less distracting. Carroll isn’t anti-digital. He designs apps for a living, for goodness’ sake! “The thing that’s wonderful about digital applications and our technology is that they allow us to connect with the world in a way that’s never been possible before,” Carroll says, “but it comes at the expense of attention.”
The next email, reminder or alert moves us away from the primary objective of planning our days, weeks and months. So digital indeed giveth, but it also taketh away. And who wouldn’t rather spend less time in front of a screen, anyway?
2) It requires more effort. But this is a drawback, right? At least that’s what I thought originally. Obviously, on my computer, I can just copy/paste or move an unfinished task from today to tomorrow in less time than it takes a Tesla Model S to go from 0-to-60 miles per hour. There’s no alternative in the Bullet system but to physically…write…it…again.
But then it hit me—it’s a good thing I’m being forced to deliberate more meaningfully on the tasks that I set for myself. The system purposefully applies “specific types of friction onto the user.” But in Carroll’s words, “If you don’t have the time to rewrite something by hand, chances are it really doesn’t matter.”
3) It’s customizable. Autonomy is a powerful source of motivation, so having the ability to craft a personal task management system in our own image is important—and a feature lacking in most of the prescribed systems you’ll find.
“The Bullet Journal is more of a framework than a very specific system,” Carroll says, “and I give people the tools that they need in order to learn more about themselves and their own habits.” This kind of framework “allows you to pour your own life into it” regardless of how that looks.
4) It’s more enjoyable. It’s really “a mindfulness practice that’s disguised as a productivity system,” Carroll told me of the Bullet Journal concept. “Whereas the digital space allows you to connect outwardly very powerfully, I feel the analog space gives you the opportunity to collect inwardly, allows you to connect with yourself in a way that you can’t in a digital way, and it allows you, more importantly and specifically, to connect with your thoughts in a way that you can’t online.”
Even before Carroll put words to it, I realized this had been precisely my experience. In practice, my Bullet routine has become more an extension of my daily spiritual reflection than the beginning of my workday. It’s the bridge between meditation and vocation.
5) Most importantly, it works! “I put this out there because this worked for me. That’s the simple impetus,” Carroll says. As a kid growing up with Attention Deficit Disorder—“before it was popular,” he says—Carroll didn’t respond well to many methods of doing things that others taught him. So, it was through 25 years of “incredibly painful iteration” that he distilled his system into the Bullet Journal framework. It’s clear through its proliferation that the practice has worked for many others as well, myself included.
While Carroll told me that the next chapter of the Bullet Journal story will be to further validate its effectiveness with scientific research, I believe the signs are already there. We know that we could all use less screen time, that multi-tasking is actually a mythand that, when it comes to “learning and remembering course material, the pen is mightier than the keyboard,” according to Indiana University’s School of Medicine.
But screen or not, the best productivity system to use is the one that works for you. As I mentioned, the first system that ever stuck for me was a customizable online solution—and something like that may still be the best option for you. But I’m a Bullet Journal convert, and you can learn specifically how I’ve applied this framework to my own productivity practice.
Tim Maurer , CONTRIBUTOR
Personal finance is more personal than it is finance.
Opinions expressed by Forbes Contributors are their own.
My favorite discovery in the field of behavioral economics confirms what we already knew deep down, even if it contradicts “common sense”–that experiences are more valuable than stuff. I recently put this finding to the test:
Concert of a Lifetime
Those were my wife’s words when I called her from the road, rushing to discuss what I termed “the concert of a lifetime.”
I’d just learned that living legends U2 were touring in support of the 30th anniversary of their most celebrated album, “The Joshua Tree.”
The greatest live band of a generation playing the soundtrack of my youth from start to finish.
Andrea was on board with going to the show–she’s a big fan, too. But what invited her claim of insanity was my insistence that we take the whole family to Seattle to see the show. We live in Charleston. South Carolina.
But the Seattle show promised to be superior to almost all others along the route. In the Emerald City, the Emerald Isle’s most melodic export would be supported by Mumford and Sons as the opening act, playing only the first three West Coast stops.
(In case you’re wondering, music is not subjective, but objective. These are all facts.)
I insisted that we had a moral obligation to go as a family–assuring my wife that it would result in a lifelong memory soon to be deemed priceless.
Now, we’re a family of four (and a half) with two boys–13 and 11–in youth sports (and an adorable puppy). One could argue that every piece of furniture in our home is a candidate for replacement.
If you are in–or remember–or tried to forget–this phase of life, you know that, regardless of your income, every dollar seems to be pledged even before it is earned. Even when you’re occasionally surprised by a surplus inflow, it feels like the money has already been spent (if it hasn’t) on the necessity du jour.
Experiences > Stuff
But a mathematical fact remains: There are only two ways to dispose of our money–on experiences or stuff. Even if we save, invest or give, we’re just deferring when and where the money will be spent on experiences or stuff.
Our eyes tell us that stuff is worth more because we can see it.
For our family, going to see Mumford and U2 in Seattle was simply more valuable than something like … replacing the battered couch, maybe the bedroom furniture.
But why? It’s not necessarily because it’s obvious from the start. Initially, the experience worth $X gives about the same amount of joy as the stuff worth $X. But as we adapt to the stuff, as it literally depreciates in value, our joy in its utilization also decreases. Or as Cornell psychologist Dr. Thomas Gilovich puts it, “One of the enemies of happiness is adaptation.”
But while stuff devalues, the recently elapsed experience can actually increase in value. “Even if it was negative in the moment,” writes James Hamblin in the The Atlantic, “it becomes positive after the fact. That’s a lot harder to do with material purchases because they’re right there in front of you.”
Furthermore, those material purchases aren’t only in front of you. They’re in front of lots of people who have the same thing–or better. My black four-door Jeep was awesome until my buddy pulled up–right behind me–in his black four-door Moab-edition Jeep (with the top down and the doors off).
The intangible nature of experience means that no one has the exact same one. Meanwhile, having shared experiences compounds their value further, as diverse recollections tend to open our eyes to elements we didn’t catch the first time around.
Sadly, despite the conviction in our collective gut and the studies that prove it’s right, “ People do not accurately forecast the economic benefits of experiential purchases. ”
Where the Streets Have No Name
By now, you know what happened, right? Yes, my loving wife succumbed to my outlandish pledge that “this will be the best memory we’ve ever had as a family!” We scraped together all the respective rewards points and discretionary dollars we could muster, ordered the tickets, booked the flights and reserved the room.
We fought through jet lag to enjoy hiking in a blizzard on Mt. Ranier, having coffee at the first-ever Starbucks, enjoying breakfast overlooking a bustling Pike Place Market, going up the Space Needle and down the Great Wheel, taking in a comedy show at a vintage theater near University of Washington, running to catch the ferry to Bainbridge Island for lunch and–the best part–watching my boys’ eyes light up as the prelude to “Where the Streets Have No Name” rumbled through our bellies.
On the plane ride home–gloriously exhausted–my wife turned to me and said, “You were right. It was worth it. But you’re still crazy.”
She’s right. About all of it.
After more than 35 years in the financial services industry,
I have found that having an investment philosophy—one that
is robust and that you can stick with—cannot be overstated.
Just like a personal philosophy can act as a moral compass, an investment philosophy can guide your decisions on how to invest. While this may sound simple, the implications can be significant. People who
put their savings to work in capital markets do so with the expectation of earning a return on their investment, and there is ample evidence to support that long-term investors have been rewarded with such returns. But we also know that investors will encounter times when the results are disappointing. It is in these times that your philosophy will be tested, and being able to stay the course requires trust.
The alternative approach likely consists of moving between different strategies based on past results, which is unlikely to lead to a good outcome. At Dimensional, our investment philosophy is based on the power of market prices and guided by theoretical and empirical research.
What does that mean?
Markets do an incredible job of incorporating information and aggregate expectations into security prices, so it does not make sense to form an investment strategy that attempts to outguess the market. Our approach focuses on using information contained in prices to identify differences in expected returns. We conduct research to help us organize our thinking, improve our understanding of what drives returns, and gain insights on how to build sensible portfolios. One such insight is looking beyond average returns. By considering the entire distribution of outcomes, we can better understand what investors should be aware of to help them stay invested when results aren’t what they expect. As an example, the S&P 500 Index has returned about 10% annualized since 1926. But over that time period, there the S&P’s return was within two percentage points of 10%.1 If investors were to adopt a strategy that tracks the S&P 500 Index expecting 10% each year, they need to understand that returns over any given period can look different.
So what does it take to stay the course? Our view is that while there is no silver bullet, there are some basic tenets that can help. Developing an understanding of how markets work and trusting markets is a good starting point. Having an asset allocation that aligns with your risk tolerance and investment goals is also valuable. We believe financial advisors can play a critical role in this determination. Finally, it’s important that the investment manager can be trusted to execute the desired strategy. In this regard, an index-like approach is useful because of how transparent it is.
It is easy for an investor to examine whether the returns achieved by the manager matched those of the index. This is part of the reason indexing has been a positive development for investors, offering a transparent, low-cost way to access markets. However, index funds prioritize matching an index over potentially achieving higher returns—so we believe they are too mechanical.
So what does it take to stay the course? Our view is that while there is no silver bullet, there are some basic tenets that can help. Developing an understanding of how markets work and trusting markets is a good starting point. Having an asset allocation that aligns with your risk tolerance and investment goals is also valuable. We believe financial advisors can play a critical role in this determination. Finally, it’s important that the investment manager can be trusted to execute the desired strategy.
In this regard, an index-like approach is useful because of how transparent it is. It is easy for an investor to examine whether the returns achieved by the manager matched those of the index. This is part of the reason indexing has been a positive development for investors, offering a transparent, low-cost way to access markets. However, index funds prioritize matching an index over potentially achieving higher returns—so we believe they are too mechanical.
At Dimensional, we’ve sought to improve upon indexing, taking the best of what it offers and adding the ability to make judgments. Our experience has been that by incorporating a little bit of judgment, you can add a lot of value.
Dimensional began back in 1981 with a new idea: small cap investing. The premise was that many investors didn’t invest in small cap stocks, and that small caps behaved differently than large cap stocks and could offer diversification benefits to investors concentrating in large caps. We found clients who agreed the idea was sensible. Over the next nine years, the performance of small cap stocks was disappointing relative to large caps (at one point the S&P 500 outpaced our portfolio by about 10% annually), so on the surface it may have appeared that both we and our clients had a reason to be nervous. But clients were willing to stick with us because we were clear about our objective—providing a diversified portfolio of small cap stocks—and we delivered on it.2 Having compelling ideas is important, but the implementation of those ideas is what really counts. From the beginning, we focused on developing protocols about how to design and manage portfolios, and 35 years later we have amassed a track record of results that we believe stands out in the industry.
1. Past performance is not a guarantee of future results. Indices are not available for direct
investment; therefore, their performance does not reflect the expenses associated with the
management of an actual portfolio. The S&P data is provided by Standard & Poor’s Index Services
2. Diversification does not eliminate the risk of market loss. Investing risks include loss of
principal and fluctuating value. Small cap securities are subject to greater volatility than those
in other asset categories. There is no guarantee an investing strategy will be successful.
Consider the investment objectives, risks, and charges and expenses of the Dimensional funds
carefully before investing. For this and other information about the Dimensional funds, please read
the prospectus carefully before investing. Prospectuses are available by calling Dimensional Fund
Advisors collect at
(512) 306-7400 or at us.dimensional.com. Dimensional funds are distributed by DFA Securities LLC.
While our long-term results show an ability to add value over benchmarks, we still place tremendous value on helping our clients understand why we do what we do. Just like those first years, we have lived through other times when the results have looked disappointing. This is one reason our approach combines our ability to make judgments with the transparency we believe is necessary for clients to understand what they can expect from us. The solutions we provide are meant to help clients achieve their financial goals. We know that a big part of enjoying the expected benefit of long-term returns relies on the ability to stay invested. By clearly articulating what we promise to provide, and delivering on those promises with robust portfolios, our hope is that we can help increase clients’ confidence in their decision to invest with us and provide them with a more successful investment experience.
On behalf of all of us at Dimensional, we want to thank our clients for the trust you have placed in us. We will continue working hard to reinforce the decision you have made. For those of you who may not yet work with us, we look forward to the prospect of serving you in the future.
Founder and Executive Chairman
DIMENSIONAL FUND ADVISORS
LETTER FROM THE CHAIRMAN, 2017