Conventional wisdom is a byproduct of groupthink that presents solutions good enough for the average person while simultaneously not being right for any individual. You follow it at your peril. The more different you are from the person that defined a rule the less you should follow the rule. Each Monday I will challenge the investing norms that just may be holding you back from living the life you want.

Unconventional wisdom: Is the secret to wealth found on an index card?

“Knowing yourself is the beginning of all wisdom.”

- Aristotle

Can you fit everything you need to know to build wealth onto a single index card? One professor in the US seems to think so. I’m not so sure.

Harold Pollack is not the type of person who typically writes a personal finance book. Yes, he is a Professor at the University of Chicago. But he is not part of the famed economics department. Instead he is a professor of Social Service Administration where he studies healthcare policy.

For much of his life Pollack didn’t pay any attention to his own finances. That changed when he was 40 and he had to unexpectedly take in his wife’s brother who suffered from a neurodevelopmental disorder.

After spending some time learning about personal finance Pollack bragged during an interview that all the financial advice anyone needed could fit on an index card. This naturally begged the question – where is the index card and what is on it? Pollack didn’t have one. Unwilling to have his bluff called he scribbled 10 rules on an index card and posted a picture of it on the internet.

Proving that anyone can get a book deal the next thing you know this healthcare expert was writing a book on personal finance.

This turn of events raises two questions. The first is why a book is needed if all the financial advice you ever need fits on an index card. The second is what did Pollack have on his index card and does it make any sense.

Pollack’s 10 rules...and my thoughts

  1. Strive to save 10 to 20 percent of your income

Saving money is important to build wealth. Being a great saver is far more important than being a great investor. However, Pollack’s rule is frustratingly vague about how much money needs to be saved.

The simple advice to save money is a message that people need to hear. In the March quarter of 2024 the average Australian saved 0.9% of their disposable income. This is in addition to super for those who contribute. But it still isn’t very much.

How much you need to save is based on your unique goals and personal circumstances. I think it is more helpful to estimate how much you need to save. When goals are vague they just don’t get accomplished.

  1. Pay your credit card balance in full every month

It is hard to argue against this one.

  1. Max out your 401k and other tax advantaged accounts

This index card is intended for a US audience – hence the 401k which is a US retirement account. I would extend this a bit. To build wealth you should focus on the returns you get to keep – after tax, after fees, after transaction costs and after inflation.

Super is a great way to lower taxes and it makes sense to max out super until you are confident that your retirement plan is on track. All aspects of tax minimisation should be included in a personalised investment strategy.

  1. Never buy or sell individual stocks
  2. Buy inexpensive, well diversified indexed mutual funds and exchange traded funds

I grouped these two together. I think Pollack is way off the mark here. The most important decision you can make as an investor is your asset allocation. The percentage of your portfolio that is allocated to different assets classes needs to reflect the return you need to achieve your goal.

The best piece of financial advice I could give anyone is that the focus needs to be on you and not the investments in your portfolio.

The second-best piece of financial advice I could give is that your focus should be on investing – the process - and not investments. That is because after asset allocation the biggest thing holding people back is poor behaviour.

People trade too much and trade at the wrong time – whether they hold individual stocks or index funds.

Design a portfolio around your goals, your competitive advantage as an investor and your temperament. That could be in individual shares, it could be in factor ETFs, or it could be in broad passive ETFs. Figure out what is right for you.

  1. Make your financial adviser commit to the fiduciary standard

This is once again a very US centric rule. In the US there is something known as the fiduciary standard which requires financial advisers to put client interests above their own. This differs from brokers who need to meet a suitability standard which is less stringent. None of this is particularly relevant in Australia.

I think this rule also misses the mark. Nobody is going to be a bigger advocate for your interests than you are. Not a financial adviser, not some government regulatory body and not a politician who has written rules about financial advice.

I agree with the fiduciary standard in the US. Sensible regulation is needed. But I think you need to know enough to hold the people you hire to help with your finances accountable. Improved financial literacy is key for both advised and non-advised investors.

  1. Buy a home when you are financially ready

I’m also a little confused about this one. You shouldn’t buy a home you can’t afford. You shouldn’t buy anything you can’t afford. A house is a good way of building wealth and if owning a home is a goal of yours and you can afford one go for it. If not, don’t buy one. This is about you and what you want out of life.

  1. Insurance – make sure you are protected

Fair enough. Understand what risks you can live with and which you can’t. Mitigate the risks you can’t live with through insurance.

  1. Do what you can to support the social safety net

This seems to be more of a political statement than financial advice. Anyone who pays taxes financially supports the social safety net. I think this is more about having an adequate social safety net which is reflective of your own views on what adequate is.

  1. Remember the index card

Seems like Pollack wanted to get to ten rules and got stuck after the first nine.

My ‘rules’

The best financial advice I could give anyone is that it is all about you.

For some reason what tends to get lost in all the pontificating about personal finance is that your finances are just an enabler for living a better life. Therefore your investing approach is entirely dependent on what you want out of life.

That is what is missing from Pollack’s index card. There is no focus on defining goals. If you know your goal you know how much to save and you aren’t stuck with a range of 10 to 20 percent of your salary. If you know your goal you can decide what asset allocation and types of investments best support achieving it.

My rules wouldn’t be limited to an index card. I think being useful beats being concise. And my rules would be all about you. On that piece of paper would be your answers to the following three questions:

What is your overarching financial philosophy? This is the narrative about how your finances will support you to get what you want out of life. This narrative will help ensure your decision making is deliberate and guided by your values.

What are your goals? A deep and concrete set of goals that translates your values into a timeline and dollar figure to achieve your dreams. The specificity of your goal will allow you to determine how much you need to save and what return you need which will inform your asset allocation.

What is your investment strategy? Your investment strategy contains your target asset allocation, security selection criteria and rules for monitoring your portfolio. This will bring structure to your decision making and minimise mistakes. The types of investments you hold in your portfolio will be reflective of your goals and your financial philosophy which makes it far more likely you will stick to your plan.

My suggestions are a little more difficult to do than follow ten generic rules on an index card. I think a little extra effort is worth it. One size fits all personal finance advice rarely works.

I’ve outlined some additional thoughts on each of my three questions:

I would love to hear your thoughts. Email me at [email protected]

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What i’ve been eating

Legend has it that biryani originated when the Mughal emperor’s wife Mumtaz Mahal visited an army barrack and found the warriors looking weak. Mumtaz ordered the chef to prepare a dish that combined meat and rice to give the warriors strength. Unwashed rice was fried in ghee and spices and saffron were added to provide some flavour. Biryani was born. Heartbroken after Mumtaz died while giving birth to his 14th child the emperor Shah Jahan constructed a tomb to honour his wife. That tomb is known as the Taj Mahal. A fitting tribute for the inventor of biryani. Below is a picture of biryani I had last week in Udaipur at the amazing restaurant Neel Kamal.

Biryani