The 3X5 Card of Investing

Last weekend, like every weekend, the newspaper I read had pieces offering personal finance advice. But lately their tone has lacked the old joie de vivre.

Before the Internet Bubble and the Housing Bubble and Great Recession and Madoff and Flash Crashes the best seller lists were filled with books about how to become a millionaire overnight. Magazines and newspapers had a thousand schemes to propose for doubling your money with tech stocks or house flipping or day trading

Now all that seems to have vanished. There’s still money advice, but of a more muted, sober sort. If investors haven’t exactly assumed the fetal position, they sure aren’t popping the bubbly. In fact the word bubble can give many of us cold sweats. Thrice burned, permanently terrified.

The best seller list is now more likely to offer cautious advice about how to keep your job or get one than how to make a killing with your excess cash. Who’s got excess cash? And there’s also the fact that 10,000 baby boomers a day are leaving the workforce. That means a lot of the advice is about how to extract money from your savings as cautiously as if defusing a bomb. The largest generation in history is not thinking about how best to cruise the South Seas in their golden years but how to avoid being reduced to a cat food diet before lights out.

Ironically this plain vanilla advice would have stood us all in good stead if we’d only paid attention to it before the fall. We’ve all heard the rules a thousand times. It doesn’t take a book to contain them, or even a longish magazine article. In fact they could probably be crammed onto a 3X5 card. Let’s try.

Giant Caveat: Anything with government rules –IRAs, 401ks, Social Security, Medicare – is so arcane that some specialized advice may be worth seeking out. But the saving/investing part is easy enough.

1 Don’t spend more than you make.

2 Pay your debts every month if at all possible. Fees can kill you.

3 If you are in a two income household, make every effort to live on one income and invest a large fraction of the other.

4 if you buy a house, it is a place to live not a get rich quick scheme. Figure you’ll be lucky to break even. And you may have heard location matters. Don’t buy the fanciest house in a modest neighborhood; buy a modest house in a fancier neighborhood. With luck the value will hold up.

5 Go for the shortest mortgage you can manage. Don’t take out home equity loans. Pay the thing off as fast as feasible. When you do, don’t spend the money that used to go for the mortgage. Invest it.

6 Invest enough to maximize the match on the company 401k.

7 If your company promises a pension, say thank you very much but don’t count on it. They have been vanishing in a puff of smoke lately. Invest even more from your paycheck.

8 If after the 401k you still have money to invest, max out a Roth IRA.

9 In choosing where to put all that money, Asset Allocation is the most important decision. As a committed Boglehead, this means I favor low cost index funds that reflect the total market. Say 30% in Total US Stocks (VTSAX), 30% in Total International Stocks (VTIAX), 25% Total Bonds (XBTLX), 5% Money Market, and possibly 10% in “Other” for slightly greater diversification. Some smart people say REITs, others commodity funds. Knock yourself out. If that’s too tricky, buy a target date fund for the year of your anticipated retirement.

10 Once set up, keep putting in, don’t take out. Leave your money alone and let it compound. In short don’t trade, invest. If you need a hobby try cross-stitch. If you need excitement, ride a roller coaster. You may not get rich, but you might get comfortable. Barring the end of civilization, you hopefully won’t get poor.

There. How hard was that? No need to listen to Suze Orman ever again or read those eye-glazing advice columns and scare headlines. No need to listen to stock touts like Cramer who was shouting “buy” minutes before the crash. No need to attempt tricky stuff like puts and calls, farm land in Bolivia, swaps and straddles, whatever they are.

Problem solved. Except you may have noticed getting the money to invest in the first place requires that you be married and both have good jobs. Keeping expenses down would tend to argue for no children, (very expensive) pets too, no Starbucks, Wal-Mart Foods not Whole Foods, dining in not out, living in a part of the country with low taxes and low cost of living, small house not McMansion. No bright lights, big city. In short, it would require us to live like people did in 1950s, fresh from the austerity of the Depression and War Years and before the great deficit spend-a-thon kicked into high gear.

I know what you’re thinking: Just shoot me, I’d rather be poor at the end and a wastrel in the beginning. The trouble is, when you begin to notice in your late forties or fifties what a terrible idea that was it’s too late to catch up.

Of course there’s always Plan B. Inherit millions from a long lost cousin. Or win the Publishers Clearing House Sweepstakes.

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