Sometimes we are too smart for our own good. In our effort to build better and better portfolios we end up building bigger and bigger portfolios. We add more asset classes as “diversifiers.” We add more actively managed funds with esoteric strategies. We rebalance frequently to maintain the integrity of our “optimal” asset allocation pie. We do a lot of work.

Although our intentions are good, all of this work may have exactly the opposite impact on our clients’ financial well-being from the one we intend. Instead of giving them a performance edge, we may be digging a performance hole that clients have to climb out of every year.

The math is simple. Let’s say your “bigger-better” portfolio has 16 positions that cover a wide range of asset classes. Let’s also say that we use “best-in-class” actively managed funds offered by “institutional quality” investment managers. Establishing that portfolio for a client will cost you about $384 in transaction costs. (Our custodian charges $24 for the purchase of an actively managed mutual fund X 16 positions = $384.)

If you rebalance your portfolio once a quarter and each rebalancing results in 4 purchases and sales, that results in $96 in transaction costs each quarter ($24 X 4 transactions). On an annual basis that results in an additional $384 ($96 X 4 quarters). So in the first year your total transaction costs are $768 ($384 to establish the portfolio and $384 to rebalance it).

Morningstar’s research indicates that the average asset-weighted expense ratio across all mutual funds was 0.64% in 2014. This number includes index funds as well, so the true average for actively managed funds is actually higher.

If we apply these numbers to a $100,000 account, we have incurred 1.41% in expenses (0.77% in transaction costs and 0.64% in fund internal expense ratios.)

What if, instead of building “bigger-better” portfolios, you had the courage to be simple? Leonardo da Vinci said, “simplicity is the ultimate sophistication,” but this view does not appear very popular among investment management professionals. It should be.

Let’s say you built a tidy little 60%/40% risk level portfolio consisting of the following ETFs:

• 36% Vanguard Total Stock Market (VTI)

• 24% Vanguard Total International Stock (VXUS)

• 24% iShares Core US Aggregate Bond (AGG)

• 16% Vanguard Total International Bond (BNDX)

Establishing that portfolio would cost $40 (our custodian charges $10 per ETF trade X 4 = $40).

What if you rebalanced this simple little portfolio once a year? Assume that we trade every position in our portfolio during our annual rebalancing process. he total cost would be another $40.

The average expense ratio for this simple portfolio is 0.09%. That’s 0.55% less than for the jumbo.

If we apply these numbers to a $100,000 account, we have incurred 0.17% in expenses (0.08% in transaction costs and 0.09% in internal expenses). Our simple portfolio starts out with a 1.24% cost advantage in the first year. Let’s subtract another 0.03% to cover the bid/ask spreads when buying and selling the ETFs. That still leaves a cost advantage of 1.21%.

Let’s assume that the only costs going forward are rebalancing costs and the internal expenses of the funds and ETFs. The simple portfolio still has a cost advantage of about 0.89% each year. Even if we charge another 2 basis points to the simple portfolio for the bid/ask spreads on rebalancing transactions, the simple portfolio still has a 0.87% advantage.

How would you like to have a 1.21% head start in the first year of establishing a portfolio and then begin each year going forward with a 0.87% lead? It would only be an advantage if the simple portfolio was a solid, stand-alone portfolio, right?

Although it looks very unassuming, don’t be deceived. This little-engine-that-could is actually quite potent. It represents holdings of more than 18,000 securities in over 40 countries. It covers all 11 major stock market sectors and provides exposure to all styles and market caps.

We all know that fees, expenses and trading costs can add up and are a drag on performance. But fretting about fees is boring and unglamorous. Finding new diversifiers or the latest hot liquid alts manager is far more exciting. But wouldn’t you like to start out with a nice head start on performance at the beginning of each year? All you need is the courage to be simple.

Scott MacKillop is CEO of First Ascent Asset Management