The cartoonist Scott Adams, whose Dilbert comic strip is a valuable educational tool that teaches what corporate life is really like, has also written some of the best personal finance advice that I have ever read. Here’s a ‘book’ that he has written on investing. He calls it ‘Everything You Need to Know About Financial Planning’. The book is 87 words long. That’s words, not pages.
Here it is, in its entirety: Make a will. Pay off your credit cards. Get term life insurance if you have a family to support. Fund your 401(k) to the maximum. Fund your IRA to the maximum. Buy a house if you want to live in a house and you can afford it. Put six months’ expenses in a money market fund. Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker and never touch it until retirement.
Adams says that he was always fascinated with money and finance. His bachelor’s degree is in economics. He also has an MBA and has worked in a bank for eight years. While the bank job would probably have provided him with inspiration for his comic strips rather than this kind of financial advice, he seriously considered writing a book on personal finance. However, by the time he had thought through the contents of the book and simplified them to their logical end, he just had these few sentences left!
And these sentences do successfully encapsulate everything you need to know in order to plan your entire life’s savings and investments. Of course, in India you would replace the 401(k) and the IRA with appropriate Indian equivalents. 401(k) and IRA are retirement planning tax-saving investments that are available in the United States. In India, you would replace them with your mandatory PF and other investments that are available under section 80C.
As for the investment advice in the last sentence, it’s actually even easier. Adams’ advice is to invest 70 per cent of your savings in an equity fund and 30 per cent in a fixed income fund. If you actually do that, you will have to track the returns of the two and keep rebalancing them to maintain this split. That’s cumbersome and in India, not very tax-efficient.
As it happens, this split of 70 per cent equity and 30 per cent is almost precisely what balanced funds offer in India. So all you have to do is to choose two or three balanced funds and invest in them. That’s all you have to do and your ‘Dilbert Portfolio’ is up and running. No matter how long you invest and how many decades away your retirement is, you’ll never have to make any changes to its strategy.
Adams has created some great comic strips making fun of the investment industry and the ‘financial entertainment industry’. In one strip created many years ago, the evil Dogbert is explaining his plan to launch a mutual fund, “We’re getting into the financial services game. That way, all our products can be imaginary.” Then he tells the pointy-haired boss, “We’ll start ten mutual funds, each with randomly-chosen stocks. Later, we’ll build our advertisements around whichever one does the best purely by chance. My goal is to be the premier provider of imaginary expertise.” I’m sure some Indian mutual fund CEOs will recognise this strategy from personal experience!
In a following strip, Dogbert is being interviewed on a business channel. The anchor asks him, “It’s reported that your fund is the highest performer of the decade. Tell us how you made that happen.” Dogbert then says in an aside to the reader, “Apparently, this guy will read anything you hand to him.”
Clearly, Scott Adams has a deep understanding of a lot more than office life.