Even though their lists are fairly short, these experts agree, almost to the letter, on at least four things. You must have an emergency fund. Index funds should make up most of your investment portfolio. Buy a home, but only one that you can afford. And don’t forget life insurance, as much as you might want to. Basic term insurance is the answer for most people.
So this week, I did two things. First, I asked these writers why so many people fail to follow those four commandments, none of which are new. There must be a reason we all have to keep repeating them.
Then, I asked them all to squeeze their best ideas onto an index card. Harold Pollack, whose initial effort inspired “The Index Card,” which he wrote with Helaine Olen, submitted a slightly revised version of his original. Mr. Adams and Mr. Clements took their shots, as did Jane Bryant Quinn, whose retirement guide, “How to Make Your Money Last,” is also out this month. A few of my fellow New York Times money scribes and I made our own cards as well.
Why do we fail? When it comes to the lack of emergency funds, there are millions of Americans with no bank accounts at all, whether because of poor credit or poor access. Many millions more cannot afford to save anything.
As for everyone else, there are at least two big problems. The first is one of will. Mr. Clements, a longtime Wall Street Journal columnist who also did a stint in financial education at Citigroup, pointed to the always increasing availability of shiny consumer goods coupled with stagnant incomes for so many. “But they don’t say no,” he said. “They go ahead and buy, which leaves less for long-term goals, unlike the smaller number of millionaires next door who live frugally and amass lots of money.”
Some of the people who give in might do better with more structure. If you’re one of them, don’t assume you’ll push a button each month or set aside a pile of $20 bills. Instead, set up automatic account transfers. “Unless you automate it, it’s not going to happen,” Ms. Olen said. (A disclosure: I see both Mr. Clements and Ms. Olen every year or two, as the guild of full-time money writers is fairly small.)
Carl Richards, New York Times contributor and author of “The One-Page Financial Plan.” Credit The New York Times
Americans have made real progress with the way they invest in recent years. Ever more money is going into index funds of various sorts that don’t try to pick individual stocks that will do better, on average, than others. At the end of 2014, just over $2 trillion was invested in indexed mutual funds, according to the Investment Company Institute. That amounted to about 15.6 percent of all money in American regulated funds. That’s up from just 8.9 percent of the total 10 years earlier, and it doesn’t count the $1.9 trillion at the end of 2014 that was invested in indexed exchange-traded funds, which are close cousins to mutual funds.
Still, why is most money still chasing the dream of picking investments that will do better than all the others? Ms. Olen points to lingering Peter Lynch-ism — the tendency of older investors who remember the exhortations of the famed Fidelity mutual fund manager to follow their instincts. If the parking lot is full, buy the stock!
But this approach gives people a false sense of superiority. You may be looking at the wrong lot in the wrong suburb at the wrong time in the wrong industry. Even if you aren’t, plenty of professional investors will notice the Costco lot with all the Mercedes in it before you do. This overconfidence leads people to invest only in companies with headquarters near them and buy too much of their employer’s stock, because they assume they have superior knowledge about the company.
Mr. Clements added that many people who bet on individual stocks had never actually compared their portfolio with an index fund. This used to be hard, but online brokerage firms can now do it for you in a few clicks (and you can check your broker’s picks on most any investment website). Most people, if they’re being honest and including the losers that are no longer in their portfolio, will find that an index fund will beat their own basket of stocks over long periods of time.
All of the experts here think buying a home is a perfectly fine idea, but it has to be an affordable one. And many of us are delusional about exactly what that means.
Mr. Pollack, co-author of “The Index Card” and a professor at the University of Chicago’s School of Social Service Administration, was one of them. When he shopped for a home in the Chicago area 13 years ago, he was newly tenured and had been lured away from the University of Michigan. He and his wife, however, had no savings, and his loan officer was not impressed.
“I was of the mind-set of ‘Don’t you know who I am?’” he recalled. “And now I know that he knew exactly what I was.”
The family borrowed elsewhere, but that first banker’s skepticism tempered their enthusiasm. They borrowed a bit less than they could have and were glad they did. Within a few years, housing prices plummeted. Today, the house would still sell for less than their original purchase price.
People can’t predict their financial future, but they can be cautious in the present. Ms. Olen suggests asking yourself the following question before buying: Couldn’t you just get something a little smaller? “For almost the entirety of human history, most people did not live the way that we do,” she said. “My mother grew up sharing a bedroom with her brother.”
Nobody much likes talking about death, let alone planning for the possibility of dying young. So it’s no big surprise that not enough people sign up for the experience of shopping for life insurance.
But Mr. Adams, who has an M.B.A. and a stint at a bank to go with his ace cartooning skills, wrote his original list after a long effort to simplify things and to do so from the perspective of someone who had no stake in the outcome. “The incentive of financial professionals is to keep people frightened and helpless,” he said in an interview this week. “What they sell is a solution to the problem.”
And so it is with life insurance, where the simplest solution — term insurance — is often the best. You might pay $50 to $100 a month or so for 20 years depending on the results of a medical exam and get $500,000 or $1 million if you die (and nothing if you don’t).
Sales agents, however, are often eager to push other forms of insurance that include complex investments, large and often hidden fees, and complex riders laden with mumbo jumbo. “The complexity is overwhelming, and people know they will be bamboozled because they do not know what they’re doing,” Mr. Adams said. “So it’s just this daunting horrible thing that is not easy to think about.”
But they should. You should. Ask for term insurance by name. Supply a urine sample and submit to a nurse’s exam. Then hand over the money.
To hear Mr. Clements describe it, it’s a moral responsibility for any parent of young children who does not have a big pile of financial assets. “Many of them don’t buy it, and those who do buy it don’t buy enough,” he said. “You have a responsibility to think about how your family would cope if you went under the next bus.”
All of these tasks require some discipline. And one thing I learned writing my own card and sitting around a table as my colleagues wrote theirs is that there is real value in discussing your financial goals with others. So be honest with yourself, consult someone who knows your weaknesses and come up with your own money priorities.
Correction: January 8, 2016
An earlier version of this column misstated the percentage of mutual fund money invested in indexed mutual funds at the end of 2014 and 10 years earlier. It was 15.6 percent at the end of 2014, not 18.5 percent, compared with 8.9 percent — not 9.8 percent — a decade earlier.
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