Why Dilbert™ does not want you to hire Intelledgement
“Good plan!”
— Dilbert’s sarcastic comment concerning Wally’s impulse to quit his job and sell “items” on eBay because “people like items”
You have to be smart to be funny, and Scott Adams—creator of the Dilbert comic strip—is most definitely one of the funniest people alive today. In his 2002 book, Dilbert and the Way of the Weasel, Adams outlined his nine-point “Unified Theory of Everything Financial”:
- Make a will.
- Pay off your credit cards.
- Get term life insurance if you have a family to support.
- Fund your 401k to the max.
- Fund your IRA to the max.
- Buy a house if you want to live in a house and can afford it.
- Put cash to cover six months worth of expenses in a money-market account.
- 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.
- If any of this confuses you, or you have something special going on (retirement, college planning, tax issues), hire a fee-based financial planner, not one who charges a percentage of your portfolio.
In case you’re wondering, we are quoting this because it is smart, not because it is funny. In my licensed investment advisor representative opinion, this is a good plan. Indeed, it is better than what folks actually do, in general, planfully or otherwise. If most Americans followed Adams’ plan, this country would be much better financial shape. And if you decide to follow Adams’ plan, and need help with something special, we will be happy to provide you with fee-based advice, or refer you to a specialist, secure in the knowledge that both you and the USA are better off for your decision.
The “Unified Theory of Everything Financial” in action
Let’s take a closer look at Adams’ plan.
First of all, historically speaking—that is, over the last century—the annual return on investment (ROI) for the stock market is about 8%, for real estate it is about 6%, and for bonds it’s about 4%. Thus, let’s say at the age of 19 you decided to follow Adams’ plan, investing let’s say, $3,000 of accumulated summer earnings and relatives’ gifts to start a new Roth IRA. You go on to add token sums each year during college, then gradually increasing to the 2008-and-after maximum IRA contribution of $5000. 70% of your money goes into an S&P 500 index fund (e.g., a mutual fund that bought every stock in the S&P 500 so as to replicate the ROI of that index over time) and 30% into a bond fund. The chart below shows what would happen presuming you obtained the historical average ROI of 8%/4% (for stocks/bonds) on your money over the next 40 years.
| Year | Contribution | 1 Jan | Income | 31 Dec | Total ROI |
|---|---|---|---|---|---|
| 2011 | $3,000 | $ 3,000 | $ 204 | $ 3,204 | 7% |
| 2012 | $ 500 | $ 3,704 | $ 253 | $ 3,957 | 13% |
| 2013 | $ 500 | $ 4,457 | $ 305 | $ 4,762 | 19% |
| 2014 | $ 500 | $ 5,262 | $ 362 | $ 5,624 | 25% |
| 2015 | $ 500 | $ 6,124 | $ 422 | $ 6,546 | 31% |
| 2016 | $1,000 | $ 7,546 | $ 521 | $ 8,068 | 34% |
| 2017 | $1,000 | $ 9,068 | $ 628 | $ 9,696 | 39% |
| 2018 | $1,500 | $ 11,196 | $ 776 | $ 11,972 | 41% |
| 2019 | $1,500 | $ 13,472 | $ 935 | $ 14,407 | 44% |
| 2020 | $2,000 | $ 16,407 | $ 1,141 | $ 17,548 | 46% |
| 2021 | $2,000 | $ 19,548 | $ 1,158 | $ 20,909 | 49% |
| 2022 | $3,000 | $ 23,909 | $ 1,666 | $ 25,575 | 50% |
| 2023 | $3,000 | $ 28,575 | $ 1,993 | $ 30,568 | 53% |
| 2024 | $4,000 | $ 34,568 | $ 2,413 | $ 36,981 | 54% |
| 2025 | $4,000 | $ 40,981 | $ 2,864 | $ 43,844 | 57% |
| 2026 | $5,000 | $ 48,844 | $ 3,416 | $ 52,261 | 58% |
| 2027 | $5,000 | $ 57,261 | $ 4,010 | $ 61,271 | 61% |
| 2028 | $5,000 | $ 66,271 | $ 4,648 | $ 70,919 | 65% |
| 2029 | $5,000 | $ 75,919 | $ 5,334 | $ 81,252 | 69% |
| 2030 | $5,000 | $ 86,252 | $ 6,071 | $ 92,323 | 74% |
| 2031 | $5,000 | $ 97,323 | $ 5,941 | $104,186 | 80% |
| 2032 | $5,000 | $109,186 | $ 7,715 | $116,901 | 86% |
| 2033 | $5,000 | $121,901 | $ 8,632 | $130,533 | 92% |
| 2034 | $5,000 | $135,533 | $ 9,618 | $145,151 | 99% |
| 2035 | $5,000 | $150,151 | $10,678 | $160,829 | 106% |
| 2036 | $5,000 | $165,829 | $11,819 | $177,647 | 114% |
| 2037 | $5,000 | $182,647 | $13,046 | $195,694 | 122% |
| 2038 | $5,000 | $200,694 | $14,367 | $215,061 | 131% |
| 2039 | $5,000 | $220,061 | $15,789 | $235,851 | 141% |
| 2040 | $5,000 | $240,851 | $17,320 | $258,170 | 151% |
| 2041 | $5,000 | $263,170 | $18,968 | $282,138 | 161% |
| 2042 | $5,000 | $287,138 | $20,741 | $307,879 | 172% |
| 2043 | $5,000 | $312,879 | $22,652 | $335,531 | 184% |
| 2044 | $5,000 | $340,531 | $24,709 | $365,240 | 197% |
| 2045 | $5,000 | $370,240 | $26,924 | $397,164 | 210% |
| 2046 | $5,000 | $402,164 | $29,310 | $431,474 | 224% |
| 2047 | $5,000 | $436,474 | $31,880 | $468,354 | 239% |
| 2048 | $5,000 | $473,354 | $34,649 | $508,003 | 255% |
| 2049 | $5,000 | $513,003 | $37,632 | $550,636 | 272% |
| 2050 | $5,000 | $555,636 | $40,847 | $596,482 | 290% |
Of course, in real in real life, some years you would do way better than 8% (S&P 500 lit things up to the tune of +34% in 1995) and some years you would do scarily worse (S&P 500 lost money for three years running in 2000-2001-2002). And just because the stock market has a 8% compounded annual growth rate (CAGR) for the past 100 years does not guarantee it will duplicate that for the next 40, of course. But presuming it does, lo and behold, four decades later, you are the proud owner of a brokerage accout with a net worth of $600,000, and capable of generating $45,000-to-$50,000 of income per year!
To get there, you contributed a total of $153,000 of savings over 40 years (an average of under $4,000 per year) while your investments earned $443,482. Nice work! (Contributing less than $4,000 may sound unambitious, but remember you also need to be allocating some of your savings for buying a house, your kids’ education, and some for health and other unplanned expenses.)
Better still, the 8% your S&P 500 index fund money earned beat 80% of all professionally managed mutual stock funds—did you know that on average each year, four out of every five professionally managed mutual funds lose to the market?—and thus most of your friends who agonized over selecting those pros and then counted on them to “beat the market” ended up eating your dust. Sweet!
Adams’ conclusion: fire and forget!
And this is the crux of why Adams’ response to any notion you might have to “improve” on his program would most likely be a sarcastic “Good plan!” He would tell you that anyone trying to sell you an improvement—an annuity, a whole life policy, a stock picking service or full-service broker, etcetera—has about an 80% chance of leaving you worse off…although you taking that advice has a 100% chance of making her money.
We agree with Adams’ argument with respect to most adjustments you might make to his plan…although of course we will tell you that our services are the exception which prove the rule! Well…you need to be the judge of that. However, we are not sanguine that a fire-and-forget missile is likely to find the optimal path through the investment storm clouds we see on the horizon (to say nothing of those we anticipate beyond it). We believe that some judicious navigation will considerably enhance your ROI…and may save you from some very unpleasant surprises!