November AAII Journal Update



Beyond the Index Card: Implementing the Advice of the Financial Experts

By Harold Pollack , Charles Rotblut, CFA

The story behind Pollack’s index card, which contains the best financial advice individuals need, and the lesson’s he’s learned.




A Closer Look at the Level3 Passive Portfolio’s ETFs

in Level3 Passive Portfolio
By John Bajkowski

In this detailed look, we explain how the portfolio’s funds differ from the S&P 500 and highlight the traits that could lead to outperformance.

Illustrating the Value of Retirement Accounts

in Portfolio Strategies, Retirement Planning
By Aaron Brask, Ph.D.

Two examples show the considerations to be taken into account when deciding between a taxable account, a traditional IRA and a Roth IRA.

Momentum Investing the Richard Driehaus Way

in AAII Stock Ideas
By Wayne A. Thorp, CFA

Based on the concepts espoused by the “father” of momentum investing, this strategy seeks outperforming smaller-cap stocks.

Online Point & Figure Charting

in Computerized Investing, Technical Analysis
By Wayne A. Thorp, CFA

Two websites that offer point & figure charts, along with many other features that those interested in technical analysis will find useful.

Revisiting the Risks of Retirement Spending Rules

in Portfolio Strategies, Retirement
By Charles Rotblut, CFA

In this update to a 1998 article, we discuss the risks of spending only portfolio income, spending returns or making inflation-adjusted withdrawals.

The X’s and O’s of Point & Figure Charting

in Technical Analysis
By Wayne A. Thorp, CFA

These charts focus on significant price movements by using X’s and O’s to make it easy to identify trend reversals.


Briefly Noted

Letters to the Editor

Members comments and questions on sustainable investing, shadow stock transactions, and measuring the quality factor.


A few years ago, University of Chicago professor Harold Pollack attracted much attention when he published a photo of an index card on his blog. The card listed all the important financial advice Pollack thought individuals needed. (We’ve republished the card as part of an interview with Pollack that starts here.)

The mere fact that Pollack was able to simplify the advice down to the point that it could fit on a 4×6 index card is what turned heads. Rather than suggesting individuals read thousands of pages of text, Pollack gave them simple and actionable steps to follow. Among the things listed on the original card were commonsense suggestions like maximize your 401(k) contributions, buy inexpensive well-diversified mutual funds, save 20% of your money and pay your credit card balance in full every month.

The suggestions weren’t off-the-cuff ramblings. Pollack spent many hours reading books about personal finance and investing. He also learned from his own life experiences. So, there was a considerable amount of knowledge behind the insights shared on the card.

Still, what drew attention to the card was its presentation of the concepts. The advice was given in layman’s terms and in a manner that was quick and easy to digest. As a writer, I can attest to the fact that this isn’t always easy. As someone who has spent more than 20 years working in finance, I can also attest to the fact that there are many professionals who seem to have either forgotten how or are otherwise unwilling to communicate in plain English. I’ve had conversations with other professionals who throw around investment and statistical terminology while thinking to myself, “you and I both know the subject, so can we just stop with the jargon?”

To be fair, some of it is just due to being around other professionals. It’s not unusual for me to be at industry events and hear lingo such as alpha (outperformance not attributable to the return characteristics of the portfolio), RIAs (registered investment advisers), low vol (low volatility) and ’40 Act funds (funds that fall under the jurisdiction of the Investment Company Act of 1940).

Some of it, however, is purposely used to convey an aura of expertise, to confuse investors or to disguise a lack of knowledge. While there are many reputable people in the world of finance, there are also those who are either ill-trained, incompetent or out to line their own pockets above all else.

How can you tell who is reputable and who isn’t? One way is to ask for the person to further explain anything you don’t understand. If they can’t explain the concept, the strategy or the product in a manner that allows you to fully understand, walk away.

Some financial concepts and products are complex and require more than simple explanations. Esoteric strategies such as those used by alternative funds (aka “alt funds”) and hedge funds are particularly difficult to explain to someone who doesn’t already possess a certain level of investing knowledge. If you can’t fully grasp what these products are designed to do and what could cause them to fail, don’t buy them. They’re not right for you.

Other products have complexities that can be explained by the right person. Universal life insurance and variable annuities are examples. Again, if you can’t get a good explanation about such policies and contracts, don’t buy them. Opt for simpler products like term life insurance and fixed annuities.

The same goes for investing strategies. Index funds should be your base (our Level3 Passive Portfolio, discussed here, is one such example). As you develop a deeper understanding of investing (and I know some of you have developed quite a high level of expertise), you can choose to increase the complexity of your strategy and what you invest in. When doing so, don’t add unnecessary complexity; always stay within your realm of knowledge, skill and comfort.


Charles Rotblut, CFA
Editor, AAII Journal