Last Updated on April 8, 2025
Overview – The Problem With Complicated Investment Strategies
We live in a world that, upon closer inspection, seems to have a natural inclination towards complexity. Technologies or practices with simple origins usually become more complex as time passes.
Early iterations of cell phones were predominantly used solely for making calls, but modern phones are essentially full-fledged computers that fit in the palm of our hands and are packed with all sorts of sensors that gather a multitude of data. Quite an impressive leap from something that started so bulky and cumbersome to use.
Throughout history, it seems that one of the hallmarks of progress or better efficacy is for something to become more complex. But is that truly the case?
Investors around the world deploy all sorts of investment strategies, and many of them are bound to become more complex over time. While complicated investment strategies sounds like a good thing, that isn’t always true, and in some cases may prove to be the exact opposite.
Don’t Conflate “Complexity” With “Efficacy” or “Progress”
In engineering, one of the profession’s cardinal sins is to overengineer something. That is, including several additional features, parts, or steps to a product or process that provides some benefits but introduces more potential points of failure or makes future repairs/maintenance more difficult.
Early cars, such as the Ford Model T, were relatively simple devices designed to get people to their desired destinations in a safe, reliable manner. If any parts failed or needed to be swapped out, replacing them wasn’t an overly difficult affair as they were mostly mechanical (i.e., non-electric) components and weren’t interdependent on other systems.
Meanwhile, modern cars are equipped with a suite of impressive features, such as electric parking brakes, adaptive cruise control, built-in GPS, in-car entertainment software, rain-sensing windshields, and lane departure warnings, to name a few.
While these features can improve the passenger experience, they also represent new potential points of failure that can impact a car’s operations. To make matters worse, many of these features are electronic and are highly specialized, meaning replacement or maintenance may now require additional tools and/or skills.
Modern cars have become so complex that one system or feature failure may affect several others, effectively crippling an otherwise effective vehicle.
Whether it’s engineering, business, or investing, many people continue to make the mistake of conflating “complexity” with “efficacy” or “progress”. Just because something becomes more complex doesn’t mean it will perform its original purpose any better, nor does this mean the simpler predecessor is now “worse”.
Adding endless layers of complexity may seem impressive, but this may give a false sense of progress or improvement.
This isn’t to say that complexity must be shunned: sometimes, it’s unavoidable but may ultimately be beneficial. Instead, making something more complex without any compelling reason to do so is where problems arise.
Don’t Forget the Purpose of an Investment Strategy
Before investors start tinkering with their investment strategies, it’s important to remember what they are meant to do.
As we’ve discussed before, investment strategies are the actions and decisions investors take to achieve specific goals. It’s possible for multiple strategies to be deployed to try and achieve a specific goal.
The types of strategies investors will deploy are contingent on several factors, such as the goal they wish to achieve, how quickly this goal should be reached, the specific results investors want to see, and their skills/knowledge.
No matter how simple or complicated these strategies are, their objective will always be the same: to successfully achieve the intended investment goal. It’s not unheard of for simple strategies to achieve stellar results and for complicated investment strategies to end up disappointing.
Complicated Investment Strategies Aren’t Inherently Bad, but They Aren’t Inevitable
Let’s clear something up right away: complicated investment strategies are not inherently bad. There will be times when such complexity is unavoidable or may even be necessary.
For example, a hedge fund with hundreds of millions of dollars under its care is tasked with two goals: achieve the best returns possible while doing its best not to be affected by the swings of financial markets (i.e., “hedge” itself against market volatility, hence the name of this type of fund).
Many hedge funds, especially quantitative ones, achieve these two goals by utilizing a multitude of high-level mathematical tools, acquiring exotic investment instruments (primarily derivatives such as options, swaps, and asset-backed securities), and operating in various countries with varying degrees of economic development.
Because of all this, the investment strategies this hedge fund will deploy will most likely be very complex. Of course, this doesn’t mean all of their strategies will be like this, but it’s safe to assume that many of them will be.
Similarly, as individual investors advance their careers, many of their portfolios will also evolve, such as containing multiple asset classes from various countries. Because of this change, the strategies they previously deployed may have undergone some significant changes to adapt to their current goals and circumstances.
While complicated investment strategies will, at times, be advantageous, this doesn’t mean that strategies that started relatively simple will one day become very complex.
If a “simple” investment strategy has produced satisfactory results in the past and continues to do so even in the face of new circumstances/changes, then there’s no real reason to complicate it.
Just as investors are free to choose which strategies they’ll deploy, so too are they free to choose how simple or complicated they’ll be. Investment strategies are subject to change, but that doesn’t mean these “changes” will always result in something more convoluted than preceding versions.
Complexity is a choice, not an inevitability.
Think Very Carefully Before Deploying Complicated Investment Strategies
If, after assessing their current goals and circumstances, investors believe that complicated investment strategies are necessary, then they’ll want to ask themselves a few key questions before proceeding. Let’s go over some examples.
First, what exactly do they hope to achieve by adding new layers of complexity to their strategies? If investors know with certainty that more sophisticated investment strategies will help achieve new goals or better achieve current ones, then, by all means, proceed. Otherwise, investors will simply be wasting their time or hindering current strategies that are already working as intended.
Second, how complex do these strategies need to be? Just because investors need to deploy complicated investment strategies doesn’t mean they need to go over the top with them. Adding more complexity than what’s necessary will only be a waste of time and energy and could even jeopardize an investor’s goals.
Finally, how long do these complicated investment strategies plan to be used? Just because investors use sophisticated strategies doesn’t mean they have to use them forever, nor does this mean they can’t revert to simpler strategies later on.
Regardless of what specific questions investors choose to ask, the point should always be the same: to fully understand what they’re about to get themselves into.
Wrapping Up
Investors around the world utilize all kinds of strategies to achieve various types of investment goals. Most investment strategies change, and many of them become more complex over time. But is such complexity inevitable?
It’s important to always remember what the purpose of an investment strategy is: to achieve a specific investment goal. Regardless of how simple or sophisticated they are, that objective will remain unchanged. Just because a strategy becomes more complex doesn’t necessarily mean it’s better, nor is it automatically a sign of progress.
Now, this isn’t to say that complicated investment strategies are bad, but they certainly aren’t inevitable. Investors would be wise to think twice before deciding to complicate the strategies they currently have or plan to use.
