My Eight Rules
John G. Clement | Jan 15, 2023
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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Thank you for sharing the list. Your grandkids are lucky to have you.
Okay, I’ll quibble and suggest replacing “ETFs” with “index funds.” Great list!
That’s what he said. Invest in index funds, low cost ETFs
That’s good advice to avoid and eliminate debt. One caveat, though, is that if you’re eligible for 401k matching, invest enough in the account to get the maximum match even if it slows down your college loan repayment a little. You may leave “free money” on the table–If you pay off that loan as quickly a possible and *then* start investing a lot in the 401k, you won’t get matching money on the amount that exceeds the max later even if you’re investing more than that amount.
However, some people have the mindset that keeps the “mathematically best” process from working for them…same as people who need to pay off the smallest loan first in order to feel like they’re achieving debt reduction even though it’s practically better to pay off the highest interest rate loan first.
Amen to the “save diligently, buy index funds for the long haul and do nothing else.”
Fantastic suggestions for all investors. I wish this was taught in public schools.
“Indeed, by age 65, the actual dollars you sock away will account for perhaps half of your accumulated wealth.”
This understates the power of compounding. The amount you put in originally will be 10-20% of what you have.
I am 70, and I worked for 35 years. My wealth is the 200% of my total salary for those 35 years. That’s the power of compounding.
Sage advice for your granddaughters. My guess is they will appreciate your message more the older they get and hopefully are able to pass the knowledge forward.
Best, Bill
Excellent rules to live by – thanks! It always fascinates me whenever I read a simple, highly effective summary of how to achieve financial success that a multi billion dollar industry exists that complicates matters and most often results in less effective results. Hopefully someday for their own benefit more people will figure it out.
I’m sure your notes would’ve contained specifics that would’ve dated over the decades. You boiled it down to a timeless, useful summary. Well done.
Great advice. Thank you.
I used to try and pick individual stocks and that was an unmitigated disaster. It took me too long to realize I cannot compete with Vanguard and Buffett, et.al. So, I agree with you, a few etfs, investing globally, etc., is the way to go. But, at least Warren Buffett and I have one thing in common, we both feel that Ben Grahams book, “ The Intelligent Investor, is the best book on investing.
John, this distillation of your notebook is great advice. Thank you for your article.
John, these are wonderful common sense tips that never get old, no matter how many times they are reiterated. Thank you for the helpful reminders to all of us.
Also, adding an “s” to your last name might help to get you in the good graces of the editor of this site….just a thought.