The Index Card and Its Commentary

FINANCIAL RECKONINGS

Note: This is the first installment of TLR’s new monthly personal finance column, “Financial Reckonings,” written by Clark Troy

By Clark Troy

Back in 2013, Harold Pollack, a University of Chicago professor of Social Work, told an audience that the best personal finance advice could fit on an index card. This comment generated a lot of excitement amongst his listeners, who asked that he produce such an index card, which he duly did.

Here’s what it said:

• Maximize your 401(k) or equivalent employee contribution;
• Buy inexpensive, well-diversified mutual funds, such as Vanguard Target 20xx funds;
• Never buy or sell an individual security. The person on the other side of the table knows more than you do about this stuff;
• Save 20% of your money;
• Pay your credit card balance in full every month;
• Maximize tax-advantaged savings vehicles like Roth, SEP and 529 accounts;
• Pay attention to fees. Avoid actively-managed funds;
• Make financial advisers commit to the fiduciary standard;
• Promote social insurance programs to help people when things go wrong.

This captures many of the core precepts of financial planning for salaried or wage-earning individuals – at least on the investment, savings and tax efficiency fronts. Pollack’s Index Card is what could be termed a Pareto solution to the problems of financial planning that Americans fortunate enough to have some month-to-month income surplus face: it addresses the proverbial 20% of inputs that solve 80% of our problems.

There is a similar solution in health. Roughly speaking, over time, study after study and innumerable anecdotal observations indicate that most positive health outcomes derive from a few simple precepts and behaviors:

• Don’t eat too much, particularly things that are bad for you (refined sugar, cheeseburgers, french fries, processed foods, etc. – the things on this list shift over time and depending on your interlocutor);
• Don’t smoke, and consume alcohol in moderation;
• Don’t drive drunk or generally take ill-advised risks;
• Exercise regularly;
• Stay connected to family, friends and community;
• Find some work that engages you;
• Find laughter and enjoyment in something outside of work;
• Get a good night’s sleep regularly.

If you do these things consistently, the odds are very much in your favor for living a healthy, happy and reasonably lengthy life.

It all sounds so simple. And yet, we are beset as a society with veritable epidemics of obesity, diabetes, heart disease, mental illness, substance-use disorders and other chronic health problems easily mitigated by adhering to these few simple bullet points. Why’s that? Because it’s hard to do the right things all the time. All we have to do is turn on the TV and we are assaulted by images of melted cheese, sizzling steaks and cold bubbling beer, on the one hand, and smiling models with perfects abs and deltoids on the other hand. The former is so near at hand and tempting, the latter so infinitely far beyond the reach of mere mortals. Guess which one we reach for?

As in health, so in finance. As Pollack shows us, many of the basic concepts of what we should do are readily synopsized, but it’s hard to put them into action, when we are continually barraged by images of things we (or our loved ones) really feel we should have RIGHT NOW, be it a car, some snazzy sneakers or that long-deferred vacation at the beach or in some exotic locale, or we’re easily freaked out and knocked off course by market turmoil, uncertainty about tax policy, fears about a parent’s medical costs or challenges a child might be facing, the loss of a job, something your neighbor said to you by the pool Saturday — be it a grim prognosis for the market or a tale of great riches made from the latest hot investment.

The problem brings to mind what I think of as “the paradox of religiosity”: really religious people, you’d have to figure, wouldn’t need to worship regularly, because they’d have all the faith stuff down cold. But in fact, the religious are the most devout in their observances and visits to houses of worship, because to apply the precepts of religions one needs to have them refreshed regularly and brought to mind in a range of contexts. As Rabbi Hillel so famously said, presumably to a student, “That which is hateful to you, do not do to another. That is the whole Law. The rest is commentary. Now go and learn.” The learning continues to this day.

Personal finance is much the same. The basics are indeed pretty simple: save regularly, invest patiently in diversified and low-cost portfolios, be aware of and use the freebies the tax code makes available to you. But doing it, aye, there’s the rub. Staying the course through the myriad complexities that life throws at those of us fortunate enough to even have them cross our paths, that’s the challenge. And that’s what this column will strive to illuminate.

Clark Troy was born in Durham and educated in the Chapel Hill-Carrboro City Schools, then elsewhere. He is a financial planner at Red Reef Advisors and may be reached at clark.troy@redreefadvisors.com. When not working, he reads, plays sports, naps, drinks coffee and plays guitar, not necessarily in that order.