Unconventional wisdom: Three tips for ETF investors overwhelmed by the abundance of choice
More isn’t always better and having too many options is challenging for investors.
Conventional wisdom is a byproduct of groupthink that presents solutions good enough for the average person while simultaneously not being right for any individual. You follow it at your peril. Each Monday I will challenge the investing norms that just may be holding you back from living the life you want.
Unconventional wisdom: Three tips for ETF investors overwhelmed by the abundance of choice
When you wish upon a star
Makes no difference who you are
Anything your heart desires
Will come to you
- Leigh Harline & Ned Washington
When Ian Morris needed inspiration as the Head of Food Technology at Arnott’s he headed to England. It was during a1958 trip that he came across the ‘Penguin’ biscuit which he brought back to Australia as the basis for a new creation for Arnott’s. Named after an underdog horse that Ross Arnott watched win the Kentucky Derby the Tim Tam emerged after 5 years of development.
The Tim Tam was a hit and quickly became Arnott’s top seller - a position it retains today. After cementing itself as Australia’s favourite biscuit between 1964 and 2000 the original Tim Tam was joined by more varieties. Currently there are 11 different flavours of Tim Tams.
Do we need all these different flavours of Tim Tams? Different people will have different opinions – although I think we can all agree we don’t need the cheese flavoured Tim Tam released in Indonesia in 2011. As investors we’ve also witnessed a popular innovation spawn all manner of variations.
The first two ETFs were launched in Australia on 27th of August 2001 by State Street Global Advisers (“SSGA”). By 2017 there were 132 ETFs listed on the ASX. There are currently over 350 Australian ETFs and in the year previous to the 30th of June 2025 49 new ETFs were launched. I’m not convinced this is a good thing for investors.
Is increased choice always good?
In many ways Walt Disney was the creator of American popular culture in the 20th century which was defined by a new brand of consumerism underpinned by choice. This notion was captured in the lyrics of the signature Disney song When you wish upon a star which I quoted at the beginning of the article. Our modern take on consumerism means having anything your heart desires.
This was a far cry from Henry Ford and his axiom that you can have a car in any colour as long as it is black. The intellectual backing for this shift in attitudes was an economic hypothesis called rational choice theory which became dominate over the last half century.
Rational choice theory postulates that humans can weigh the costs and benefits of multiple options and choose the best one. Our ability to compare the relative merits of different choices means that we always benefit from more options. Each new option may be the one that is perfect for you.
Rational choice theory supports the notion that investors benefit as more ETFs are released. But there is reason to believe at a certain point this isn’t true and additional ETFs are detrimental to investor outcomes.
Critiques of rational choice theory
Amos Terversky and Daniel Kahneman took aim at some of the underpinnings of classical economics and started a new field of study called behavioural economics. Their work and those of other researchers indicate that humans routinely violate the principles of rational choice theory for a variety of reasons.
Beattie, Baron, Hershey & Spranca found in Psychological Determinants of Decision Attitude that too many options made choosing something a more challenging proposition. Lyengar & Lepper found in When Choice is Demotivating that participants preferred 6 options instead of 24 or 30 options when making a choice.
Kahneman and Tversky found that the more options available the more people believed they would regret the choice they made. Regret aversion is similar to loss aversion where people experience more displeasure from making the wrong choice than pleasure from making the right choice. Regret aversion negatively influences the quality of decision making.
As options increase rational choice theory falls apart because we are not computers. To gather and assess the information needed to make an optimal choice becomes daunting at a certain point.
I don’t know when the number of ETFs crossed this threshold. But I suspect we are well past it. That doesn’t mean every investor is equally disadvantaged by the abundance of choice for ETFs. It all comes down to where you fall on the maximiser / satisfiser scale.
What type of investor are you?
Self-awareness is a critical component of successful investing. Introspection allows investors to understand when their natural tendencies may be leading them down the wrong path. One valuable self-awareness exercise is to place yourself on the maximiser / satisfiser spectrum.
A maximiser is a perfectionist who constantly strives to achieve the optimal outcome. When faced with options a maximiser will exhaustively research each choice before deciding. In the investment world this approach manifests itself in a portfolio with precise asset allocation and extensively researched investments within each asset class.
Satisfiser is a term that combines satisfy and suffice which was coined by psychologist Herbert Simon. A satisfiser looks for a solution that is good enough and then moves on to spend their time doing something else. Investors with satisfiser tendencies will not exhaustively research every option but instead pick an investment that meets high-level criteria.
Most people are not at one extreme or the other. And most people will exhibit different degrees of maximising and satisfising in different parts of their life.
However, it is worth noting that the investment industry is very much a maximiser driven profession. This is partially about the people that are typically attracted to the industry. Partly it is the incentives inherent in the industry where there are big rewards for optimising outcomes.
But there is also a benefit for anyone who takes a cut out of investor returns to portray investing through a maximiser lens. If investing is viewed as requiring enough effort and precision it is easier to pay somebody else to do it.
Central to this portrayal is the perceived connection between exhaustively researching available options and optimal outcomes. All investors no matter where they fall on the spectrum are influenced by this narrative about successful investing.
Below are three tips for investors who are overwhelmed by choice and feel pressure to conform to the maximiser ideal.
Perspective: No portfolio is perfect
Investing is not like buying a TV. If you exhaustively research TVs you can likely find the best one for you. But investment outcomes are based on an unknowable future which no amount of research can fully account for. You can extensively research an investment and do everything right – and still lose big.
Investing guidance is often delivered in a tone that implies Moses came down from the mountaintop with the fundamental truths of investing. But there are few truisms in investing. Lots of different approaches work - find one that works for you. And remember, most of these professional investors with their finely tuned jargon, army of analysts and perfectly designed portfolios can be outperformed simply by buying an index fund.
Narrow down the choices: Set high-level criteria before detailed research
When faced with an overwhelming number of options it is helpful to find a way to quickly cut down the list to a more manageable size. The way I do this is to set high level criteria.
I won’t pay more than 0.35% in fees for an ETF. Why 0.35%? No particular reason. I just think that seems like a reasonable fee limit. This simple screen eliminates 212 ETFs in Australia. I will still try and find the cheapest ETF but within that smaller subset.
I choose to avoid actively managed ETFs. Most active managers underperform and I’m just not sure I have the capability to pick the few that don’t. Sticking to passively managed ETFs eliminates 175 of the available choices.
Your high-level criteria will be different than mine. But figure out ways to say no to investments quickly so you can focus your research efforts on a subset of the available options.
Make peace with your choices: Align your strategy to your goals
One of the biggest issues that maximisers face is the tendency to tinker with a portfolio in a never-ending pursuit of perfection. It is easy to see bad behaviour when others are doing it. It is less clear when you are the one making the mistakes. We are blinded to our own mistakes because we know our intentions are good – nobody is deliberately sabotaging their portfolio.
Markets provide constant feedback through price changes. In any given time period it is unlikely you will own the best performing investments which means you may interpret market movements as a constant exhortation to do something different. In this challenging environment you need to make peace with your approach and the easiest way to do that is to have a plan. A plan lets you know that you are on track to get what you want out of life. Set goals and design a strategy to achieve them.
Final thoughts
Investors will continue to be faced with an overabundance of choice. Nobody is going to make a law restricting the number of ETFs available. And there are good things that happen through competition like lower fees.
There are two pieces of context to keep in mind when viewing the evolving ETF landscape. All the basic ETFs you need are already available and have been for some time. And the motivation behind creating each new ETF is not altruistic.
Like the explosion of Tim Tam flavours the ETF providers are simply responding to the latest fads. It won’t be long before we question why we ever needed the Deluxe Café Latte Tim Tam. Many of the latest thematic ETFs will look equally anachronistic in the future.
If history is any guide these thematic ETFs will have disappointing results and be discontinued just like the line of Adriano Zumbo inspired Tim Tams or the short-lived mocktail flavoured versions. Morningstar’s Global Thematic Funds Landscape report in 2024 found that most thematic equity funds fail to beat a broad global equity benchmark, and over 60% of them have shut down in the past 15 years.
No matter where you fall on the maximiser / satisficer spectrum there is some wisdom to be gleaned from the investors who settle for ‘good enough’. It is often the pursuit of perfection that gets investors in trouble
If you are in Brisbane come hear Shani and I speak at the Queensland Investors Club on November 11th.
Email me at [email protected] with your thoughts.
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What i’ve been eating
I’m not going to beat around the bush. Last weekend I had the best Mexican food I’ve found in Australia. Pictured is a birria taco from the appropriately named Papi’s Birria Tacos on Oxford Street in Darlinghurst. It is a hole in the wall but well worth visiting.
Birria is a regional cooking technique from the Mexican state of Jalisco. When the Spanish conquistadors showed up in Mexico they brought goats which multiplied rapidly and soon became a pest by eating all the local people’s crops. The simple solution was to eat the goats but the meat was gamey so a strong spice and herb mix was created to mask the taste. A low and slow cooking technique was used to make the meat tender. Birria involves marinating meat in adobo and slow cooking it in the braising liquid. The beef version at Papi’s is close to perfect.
