It is often said that if you want to dine with the classes you have to feed the masses. So it's food for thought when a world-class investor eats his own cooking. Yet Sir John Templeton, the legendary founder of the Templeton mutual funds, has long counseled that the simple investment vehicle he helped to pioneer for investors with a few hundred dollars to steward might also free foundations, endowment funds, pension funds and private investors of complications, worries and costs when stewarding even hundreds of millions of dollars. And he has only grown more forthright in that case since selling his mutual fund company in 1992 in order to devote more of his resources to philanthropy and other spiritual pursuits, including the concept we have termed "spiritual investing."

I have written two books about John's philosophies. It was while researching the first that I heard "John's true genius is in keeping things simple" over and over from his portfolio managers. I also serve as an advisor to John's foundation; have co-authored investment articles with him; and often help others who are writing about his views. So I will take a few liberties in sharing why John may currently invest in a few individual securities and conservative hedge funds as well as mutual funds but feels it is wise for the future trustees of his foundation to "keep it simple" by primarily utilizing mutual funds--both load and no-load--when we are no longer graced with John's investment skills:

People:As John's statement to Philanthropy indicates, he strongly believes that investing is ultimately done by people. That may sound strange in an age when even sophisticated investors are increasingly joining "the herd" in utilizing index vehicles run by computers. Yet some person still has to decide which indexes to utilize. And while every investor knows that 90% of actively managed mutual funds have trailed the S&P 500 index in recent years, very few know that there are over 100 different indexes and 95% of them have trailed the S&P 500 as well. So to have achieved the highly unusual returns that index vehicles are perceived to offer, some person must have astutely--or more likely accidentally--chosen the proper index.

Perhaps as an indication of how difficult it might be for that same person to choose a rewarding index in the future, John closed his interview by saying this to Philanthropy's readers, who are primarily American: "There is a vast amount of new investment by people who don't know what they are doing, so the stocks of famous businesses have been bid up much more than unknown businesses or unknown nations. It would not be wise to invest in an index fund that specializes in big companies." Yet I would note that his counsel has not prevented the Vanguard 500 Index fund from taking in more money than any other mutual fund in America this year. Perhaps even more noteworthy, as an institution, Vanguard itself has been suggesting that some of its other funds might prove more prudent in the long run. The most recent Morningstar report actually shows that the professionals managing the Vanguard Global Asset Allocation Fund would allocate less than 5% of an investor's assets to U.S. stocks. But people keep sending money to the 500 Index fund.

Transparency: Actively managed mutual fund families often have a common culture that is shaped by an investment committee and analysts who favor a particular investment style when producing a "buy list" of individual securities. Still, there can be fairly significant "divergence" or differences in the performances of the various funds within the fund family. Again, these differences are often attributable to the particular person managing the portfolio. Fortunately, to an extent perhaps uncommon to those who monitor the separate accounts of trust departments and other institutional managers, analysts who monitor mutual funds tend to focus on people far more than the institution.

For example, Don Phillips is the chief executive officer of Morningstar, the best known mutual fund analysts in the world. Perhaps because his first investment was 100 shares of the Templeton Growth Fund, Mr. Phillips sounded a great deal like John when he recently told Money magazine: "I start with the manager. You want to hire the best and smartest people you can, and then understand and monitor to some extent what the asset-allocation implications are for you." The typical Morningstar report provides insights into your manager's education, experience, trading habits, attitudes about higher risk investments like derivatives and current worldview. As an advisor, I find many fund managers so accessible, I can easily learn about their investment ethics and even their denominational preferences.

Diversification made simple: Most investors think of mutual funds as a single investment. But they are actually accounts for holding dozens, probably hundreds, of stocks, bonds and so on. Hence John's counsel to the readers of Forbes that utilizing a few good funds might greatly simplify the investment process, freeing them to focus on far more important matters.

Flexibility: With consolidation continuing in the mutual fund industry, it is increasingly possible to find broad expertise within the same fund family. For example, John sold his funds, which are highly regarded managers of international stocks, to the Franklin family of funds, which are primarily recognized for their expertise in managing bonds. Franklin later bought the Mutual Series of funds, which is primarily known for its expertise in domestic stocks. Investors may now move quite easily--with little if any cost--among those various funds as the investors' needs change or markets move to excess. Yet many domestic private account managers might find it difficult to expertly diversify a significant portfolio into international investments--much less to a conservative off-shore hedge fund--should the investor decide to heed John's current counsel and under-weight America's blue-chip stocks.

Costs: The John Templeton Foundation would enjoy significant economies of scale regardless of the investment policies John established. But smaller institutions with only $10 million to invest can enjoy the same economies as John's foundation by investing in the same funds as John does. That can be significant. Too often, smaller institutions essentially layer marketers upon asset allocators upon investment managers upon brokers upon performance monitors. While I certainly have no objection to investment counselors making a living, too many cooks can still spoil a good meal. Too many cooks may also make even a good meal too expensive.

Yet smaller institutions and larger private investors are often in particular need of wise counsel, even when choosing funds. Again, the right mutual fund companies may be of significant help without significant costs. Unfortunately, they may never come to mind. The reason is that trustees of foundations and so on often manage even smaller personal portfolios. And most financial publications imply--and increasingly categorically state--that investors should never consider so-called load funds that immediately reduce your capital by up to 5% when you invest. So many trustees are not aware that most load funds like the Templeton funds have long eliminated the normal up-front commission for investors with $1 million or more to invest. Yet the load fund companies will still compensate brokers or planners by sharing the fund company's annual management fee. This relatively small compensation essentially allows small institutions and larger private investors to obtain counsel about asset allocation from brokers and planners and the investment management of the fund company for the cost of many no-load funds, sometimes less.

This arrangement is also often much less costly than more common annual fee arrangements. For example, in a fairly typical arrangement with fund companies that normally charge a load, a portfolio of bonds, domestic stocks and international stocks will cost less than 1% annually. But fee-based brokers and planners now charge up to 1.5% annually for allocating assets among no-load funds and separate accounts--which have their own costs to be added on. Yet they are so popular they account for 30% of all assets held by Charles Schwab, a popular custodian. (Note: John and I agree with financial writers that investors are wise to avoid so-called "Class B" type load funds where an additional annual fee of about 1% simply replaces the up-front commission traditionally deducted from your capital when you invest. Yet even that might be less costly than many of the other annual fee arrangements which are rarely the target of financial writers.)

In summary, the expanding universe of both load and no-load mutual funds as well as conservative hedge funds provides investors with significant opportunities to manage assets in prudent, ethical and efficient ways. Yet even Sir John Templeton chooses to give a "wise manager wide latitude" in managing assets. After five decades of managing assets for both small and large investors, John knows that his fellow mutual fund legend Peter Lynch was correct in saying: "I wish that on every bedside table, next to the Bible, there was an article explaining the nature of investing, because people are still either too confused, intimidated or busy to know what to do."

That simple insight requires more humility than is natural for most investors, especially after a long bull market and with many of us substituting libraries of investment information for a few proverbs of investment wisdom. But future trustees of the John Templeton Foundation--which was created by one of the most sophisticated investors since Solomon--will be guided for decades, perhaps centuries, to come by John's Theology of Humility. And they will keep things almost spiritually simple by investing in the humble mutual fund.

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