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My Eight Rules

John G. Clement

I’M AN 81-YEAR-OLD retired radiologist. Early in my medical career, I realized my stock broker was managing my account for his benefit, not mine. I fired him and took charge of managing my own investments.

Today, I have four granddaughters who are starting to invest. Over the years, as I learned more about personal finance, I put together a 130-page financial notebook. My granddaughters probably don’t want to read my lengthy notes, so I decided to put together a one-page summary. It includes these eight points:

  • Your human capital is your most important asset—one that never shows up on your financial balance sheet. Your human capital is your education, skills, work habits, contacts and mentors, and it determines your future earnings stream. Your skills will require constant improvement throughout your career. When you retire, your earnings stream will dry up—which is why you need to use your human capital to save for the future.
  • Save what you can, as soon as you can, for as long as you can. You might first save 10% of your income, then 15%, and then—when possible—even more. Your regular savings are essential to becoming financially independent and more important than the investment returns you earn. Indeed, by age 65, the actual dollars you sock away will account for perhaps half of your accumulated wealth.
  • First, eliminate debt. Taking on debt that charges non-tax-deductible interest, such as car loans and credit-card balances, is the biggest obstacle to accumulating wealth.
  • Next, create an emergency fund equal to four months of your current salary. Consider this insurance against job loss or serious illness. Explore online banks to find the highest interest rates. Once retired, this fund should be increased to five or six years of anticipated portfolio withdrawals.
  • Then, start your investment accounts. Open Roth accounts to get relief from all taxes on accumulated growth and withdrawals. When you’ve reached the contribution limit, open a discount brokerage account and purchase exchange-traded index funds (ETFs).
  • Your portfolio should consist of a small number of low-cost ETFs. ETF investing is the simplest, most efficient and least stressful method of investing. Your goals may be simple, but the key is to take them seriously. A simple solution is to save diligently, buy index funds for the long haul and do nothing else.
  • Do not pay fees to anyone else to manage your money. Although “fee” is a small word, it can seriously erode your future wealth. Keep your portfolio management as simple and automated as possible. You can’t avoid all taxes and costs, but you can reduce the activity that increases both these subtractions from your wealth. Excessive activity will also increase behavioral portfolio mistakes.
  • Do not forget that health is your first wealth. Always look after it.

John G. Clement spent 39 years as a hospital radiologist, 12 of them as the head of medical imaging at the Royal Columbian Hospital in New Westminster, British Columbia.

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