The Index Card, Book Review

Last week I picked up a copy of The Index Card, by Helaine Olen and Harold Pollack. Olen, a personal finance writer who came into public view as writer and editor behind the LA Time's Money Makeover series. She is also the acclaimed writer behind Pound Foolish: Exposing the Dark Side of the Personal Finance Industry.

Harold Pollack is the Helen Ross Professor at the University of Chicago's school of Social Services. Pollack is the one originally credited with the idea for the index card as motivation for the project.

Olen and Pollack have done something brilliant with this book. They have put the basic keys to sustainable wealth building in the shortest, simplest form I have seen to date:

Harold offhandedly noted that the fundamental dilemma facing the financial services industry is that the correct advice for most people fits on a three-by-five index card and is available for free at the library.

Prior to picking up this gem, my personal finance 101 recommendation would have been dependent on the question:

Q: “How can I be better with money?”
A: Ramit Sethi’s I Will Teach You to be Rich.

Q: “What do you know about the stock market?”
A: Burton Malkiel’s A Random Walk Down Wall Street.

From now on, The Index Card will be my first recommendation in both cases.

The Good

There is a lot to love about this book. The content meat is roughly 200 pages, which is not a huge undertaking for your average read-on-the-train | waiting-in-the-lobby | before-bed kind of person. Simplicity is a fundamental premise: the correct advice for most people fits on a three-by-five index card...

This concept is much like my own minimalist views in regards to financial education. It takes very little knowledge and a few rock-solid principals to make the right decisions.

The book is big on guidelines, and therefore provides otherwise skeptical or overwhelmed readers with strict decrees. In his recent Slate Money interview, Pollack compared the directives of the index card to Mosaic law: Thou shalt maximize thy 401k contributions. Thou shalt buy low-cost index funds...

Maximizing savings over spending; minimizing lifestyle inflation; diversified and low-cost investing; practical insurance; and understanding home ownership (home purchase guidelines, limited upside, and potential downside). Despite the easy read, each topic receives a thorough overview. Some of my notes:

  • Automation and don’t think about it financial management are critical to forcing your (otherwise lazy) hand.
  • Compound interest is super powerful. Start young, time covers a multitude of mistakes.
  • Don't stock pick, just don't.
  • Actively managed funds rarely beat the market. Low-cost index funds should be your north star.
  • Use financial planners who commit to the Fiduciary Standard. Otherwise they are just peddling high-cost merchandise disguised as financial advice.
  • Insurance is insurance, not an investment!
  • Buy a home to live. Don't buy at your limit. Don't count on your primary residence as your sole longterm investment vehicle. Renting is an advisable choice in many cities and at many stages of life.

The Bad

There is virtually no discussion of dividends as an aspect to equity investing. While this may be considered at the next level of technicality (i.e. another book), it’s important for retail investors to understand that merely buying and holding stocks comes with regular payouts.

Dividends are a massive value-add for people who typically compare stocks against savings accounts, certificates of deposit, or money market accounts. Buy & hold is a lot easier if you're getting paid for your patience.

In Rule #9, The Index Card throws a nice curve ball and advocates for your support of the social safety net. It's a nice and unexpected conclusion, particularly when compared to much of the other literature in personal finance.

I would push for a small revision of this chapter highlighting the additional importance of local non-for-profits and charities. People of means do affect their communities by paying their taxes. However the eventual government priority may turn out to be something unrelated to the social safety net, and potentially unrelated to the unique issues faced in your locality.

It is fundamentally proactive to support effective organizations within your community. Because personal finance thrives in the proactive realm, it seems that this would fit thematically. The best donors measure outcomes, risks, and require competence from their chosen charities.

For more information on effectively measuring and evaluating charitable causes, I recommend William MacAskill's Doing Good Better: How Effective Altruism Can Help You Make a Difference.

Conclusion

The book is so worth it. Dividend and charitable feelings aside. The simplicity and general relevance of the index card technique is matched by no other.

As I mentioned above, this will be my new personal finance 101 recommendation. I have added to the top of my Investor Reading List.

The Index Card, by Helaine Olen and Harold Pollack is a tremendous new book for those in search of personal finance fundamentals. Even an advanced reader can get pumped going back to basics. My review, inside.