Everything You Need to Know About Money, in Eight Lines
Harold Pollack, a University of Chicago professor, summed up everything you need to know to be a successful investor, and it fit on just one 4-by-6-inch index card.
In just eight lines, he said what I have been saying for years: Investing isn’t magic or even that difficult, but it does require discipline.
Line one: Max out your employer-sponsored retirement plan. I’ve beaten that one to death in this video. Go back into the archives and watch them.
Two: Control your expenses. John Bogle, founder of Vanguard, says we can triple our returns if we control our expenses and emotions. Discipline!
Three: Never buy or sell anything unless you know who is on the other side. Most folks don’t have the resources to do that, so you better have good advice from an experienced investor and analyst.
Four: Save 20% of your money. More discipline!
Five: Pay off your credit cards every month. Doing so will increase the return on that part of your money by as much as 18% a year.
Six: Maximize tax-advantaged vehicles – Roths, IRAs and SEPs, and 529 accounts.
Seven: Pay attention to fees.
A friend of mine, at my encouragement, recently fired his advisor, who was charging him 1.2% a year to manage 17 mutual funds for him, which also had fees associated with them. Mr. Advisor was costing my friend $10,000 a year just for his fee. The funds took even more.
And eight: Make your advisor commit, in writing, to a fiduciary standard. That means he can do only what is in your best interest. And, if that seems obvious, believe me, it is not.
The law says he must do what is appropriate for your risk level, not what is in your best interest. Go back and watch that segment I did on the subject a few months ago.
These are eight simple ideas that will put you in the top 1% of all small investors, but only if you have the discipline to stick to them.
Believe me, it isn’t magic!