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The simplicity of this investing method hides its power

Investing is simple. But keeping it simple, that’s the hard part. Especially when markets get choppy, the temptation to ‘do something’ creeps in. Tweak your portfolio. Time the market. Chase performance. Sound familiar?

But here’s the truth: great investors don’t get clever – they get consistent. Sounds easy. But in reality, doing nothing is one of the hardest parts of investing – especially when your portfolio dips and headlines scream panic.

That’s where single fund solutions, such as one-click multi-asset ETFs and target date funds, are coming to the fore as an antidote to complexity. These are ready-made, globally diversified total market portfolios of stocks and bonds designed to ride through multiple market cycles.

Minding the gap

Morningstar’s annual Mind the Gap report is a great tool to help figure out what's at stake. Its research is a sobering reminder of how costly it can be to tinker with a portfolio by estimating the gap between reported returns on managed funds and ETFs and the actual returns harvested by investors.

There is a startling difference between the two, which is directly attributable to the poor timing of investor purchases and sales.

Over the 10 years to December 2023 fund returns outperformed the average investor actual returns by 1.1% annually, largely due to investors’ performance chasing tendencies. A 1.1% reduction in returns is a sizable sum over one year and a crushing blow to a long-term retirement portfolio over 30 years of compounding returns.

Morningstar also looked at the prevalence of performance chasing drag across different fund type categories. Interestingly, multi-asset funds stand out from the pack as products where investors came closest to earning their full return and self-harmed the least (only 0.4% behind).

Turns out there are some good reasons why these one-click solutions come out ahead.

Superannuation clues

Everyone is happy to stay invested when markets are rising, but how can investors avoid the cost of panicking when things turn south?

The superannuation system gives us some clues. With its compulsory contributions and the prevalence of single fund investment management frameworks, super funds have delivered some world-leading pension results.

Super may have cracked the difficult problem of how to get people who say they are long-term investors to actually be long-term investors. And many Aussies are starting to adopt a similar mindset and investing approach for their non-super nest eggs.

The first Australian ‘one-click ETFs’ debuted in 2017. The category hit $1 billion in 2020 and has been growing at roughly 40% annually for the last five years. Which brings us to $6 billion today, after raking in $1 billion in new cash flow across the past 12 months alone.

One of the biggest benefits of a one-click portfolio is you cannot measure individual investments inside your portfolio. There is a big behavioural advantage in this, because when you can there is a tendency to look at the performance of each investment individually.

In a well-constructed balanced portfolio, some assets will always outperform and some will always underperform. And to assume that the under performers are bad because of a recent drop is an easy trap, because the whole is greater than the sum of its parts.

As the Mind the Gap report shows, there is a strong desire to get rid of underperformers at just the wrong time. This leads to the dreaded buy high and sell low pitfall. So in that sense, one-click solutions don’t give investors that opportunity to self-harm.

One-click funds also auto-rebalance, which ensures the desired asset allocation and risk level is maintained. With the added benefit of systematically selling high and buying low, rebalancing can actually add to expected returns when volatility hits.

These behavioural and automation benefits, paired with a dollar cost averaging contribution strategy, can put a portfolio on autopilot. Recurring contributions over a period average out the buying price and can further reduce the impact of market volatility.

There’s a common perception that successful investors are the ones that nimbly navigate each zig and zag in the market. But the evidence suggests otherwise, and Warren Buffett, arguably the greatest stock picker of all time, sums it up nicely: “Wall Street makes money off your activity. You make money off inactivity.”

One-click funds aren’t flashy, but don’t overlook the sophistication hiding behind their simplicity. Investing should be like planting a tree and watching it grow—not digging it up every time the weather changes.

 

Duncan Burns is Chief Investment Officer for Asia-Pacific at Vanguard Australia, a sponsor of Firstlinks. This article is for general information purposes only and does not consider the circumstances of any individual.

For more articles and papers from Vanguard Investments Australia, please click here.

 

8 Comments
AlanB
August 19, 2025

"As the Mind the Gap report shows, there is a strong desire to get rid of underperformers at just the wrong time."
How long do we have to wait for MYR to recover to its IPO price? Foolishly bought on the basis of the glossy prospectus featuring a supermodel. Yes, an investment portfolio is the sum of its parts and ETFs are a good thing, but some duds will remain duds and need to be purged, at a painful loss.

Graham W
August 16, 2025

Surely the best set and forget for any investor is gold bullion, but apart from the Gold ETF, no opportunities exist for the average punter to get exposure in their superannuation. The failure of the big superfunds to avoiding this asset class is in my opinion very poor. Holding gold bullion in my SMSF personally and by many of my clients has been very rewarding. It takes a bit of work to buy and then store , but a 10% allocation is an easy set and forget investment decision.

AndyR
August 15, 2025

Thanks Duncan, I enjoyed reading this summary. Its a similar message to the one I got from your interview at the Morningstar Investor Conference a couple of years ago.

Kevin
August 15, 2025

The zig zag ( dog on a leash) is a good analogy,and the simplicity is very easy to see,it is impossible to see as they spend a lifetime of none so blind than those that will not see. Make up their own rubbish,invent their own facts and come up with the stupidity of time machines .The many variations of do you want to be right or do you want to make money They never stop fooling themselves it's all about being right and avoiding making money. So!

The zig zag and the mental strength needed, checking those margin loan statements to get through that big crash of the GFC,and the 3 or 4 days of extreme pressure. A 30% drop I'll buy ( I did) a 50 to 60 % I didn't expect,it was a wonderful lesson for me .
The 3 big drivers of the concentrated portfolio .On 30/6/2009 CBA was $38.93 ,WES at $22.37 and MQG at $39.05. That first week in March when they hit bottom and then bounced back for a gain of 11 or 12% saved me. Those gains are huge in 3 months,I didn't notice that at the time.I was probably still a bit fuzzy headed after my fright. CBA bottom around $26 ,WES bottom at~ $13 ? and MQG ~ $17?.
You don't need to wait 30 years to see how that worked out ( the simplicity of compounding and doing nothing). You know what they'll be doing in 2039.Making up their own rubbish,inventing their own facts,coming out with the stupidity of time machines .They'll still have no idea of the simple concept of compounding and doing nothing . They'll still be fooling themselves that they want to be right,to hell with making money .

Investing is great fun. So today I buy more CBA,not for me but for a great grandchild that may never be born in my lifetime. Planning ahead for 40,50,60 years. Who knows ? They couldn't plan ahead for 60 minutes . In 60 years they'll still be making up their own nonsense,inventing their own facts,and coming out with the stupidity of time machines .They'll still be complaining about fictitious huge profits that companies make .They'll still never buy any shares in those companies,all you have to do to go bust is make huge fictitious profits
Yahoo,bike time.

Dudley
August 15, 2025

"You know what they'll be doing in 2039":
Time traveller alert.

"That first week in March when they hit bottom and then bounced back for a gain of 11 or 12% saved me.":
Time machine in repair shop at inopportune time.

Kevin
August 14, 2025

That's handy. They all make up their own nonsense and invent their own facts.You've got to make it as complicated as possible,it hides incompetence
So,looking for the old margin loan statements to see how well I did by doing nothing I came across an old Vanguard chart for 30 years. 1983 to 2013. The usual start at $10K ,the list of events at the the top,a large amount of information.

In order .Aus shares $268,733 ( 11.6 % pa)
US shares $190,702 ( 10.3% p a
Oz bonds $ 183,877 ( 10.2%)
International shares ( MSCI index? ) $129,668 (8.9%)
Listed property $168,900 (9.9 pa)
Cash $105,786 ( 8.2 % p a)

Inflation $29,364 (3.7% p a)..
Compound $280K at 10% for the 12 years from 2013 to get a rough idea of 42 years of doing nothing.
42 years of making up their own nonsense,inventing their own facts,saying you can't do that. Give them another 42 years and they'll do exactly the same thing all over again.
The price of a very good used car in 1983 can set you up for life,and carry on through the generations.

Dudley
August 14, 2025

"The price of a very good used car in 1983 can set you up for life,and carry on through the generations.":

How much today for a very good used time machine?

Mart
August 14, 2025

As Mr Bogle, the founder of Vanguard, said: instead of "don't just stand there, do something!" it's "don't just do something, stand there!"

 

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