Irreducible Complexity

Is investing today too complicated?

Hedge funds, ETFs, high-speed trading, flash crashes—is the market today too multifaceted and treacherous for the average investor to even understand, much less profit from?

It certainly can seem that way. Because computerized exchanges have largely replaced the physical hustle and bustle of the trading floor, the market now handles far more volume at far higher speeds than it ever could before. This has opened the way for a lot of new products, some of which represent real advances for investors—like exchange-traded funds based on efficient, low-cost indices. These allow the average person to invest bite-sized sums in a broadly diversified manner.

But many products aren’t advances. They’re just a way for clever marketers to convert your investment performance into their fee income. There’s a certain irreducible complexity to modern finance that precludes an easy understanding of its implications. Unscrupulous operators take advantage of this fact. That’s why ethics is the most important part of any finance curriculum.

Complexity is part of life. It’s the price we pay for efficiency. But now, as always, it pays to have a trusted guide.

Douglas R. Tengdin, CFA

Chief Investment Officer

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