<THE FOOLISH FOUR>

Financial Independence
by Robert Sheard

LEXINGTON, KY. (August 18, 1998) -- It's quarter till one in the morning. You can't sleep. You remember vaguely having seen some literature from your employer on retirement planning, but you didn't really pay attention to it. You're holding a few mutual funds your father told you to buy but you don't have any idea how they're doing. You don't really have a plan and you turn forty next week. Sound familiar?

I hope not, but for all too many Americans this is the rule rather than the exception. But planning for retirement doesn't have to be so tough and neither does saving for it. Let's cover the basics.

Learn what you need to know and what you don't. You need to know about insurance, what's worth buying and what simply enriches the salesman. You need to learn about wills and why it's crucial that most people have one. You need to learn about taxes, at least enough to know where to turn for help when and if you need it. You need to learn how to manage credit. And you need to learn about saving and investing.

You don't need to learn about derivatives. You don't need to learn about commodities. You don't need to learn about market timing, other than to learn that it's impossible. You don't need to learn about day trading. You don't need to learn about mutual funds, other than that the majority of them are embarrassing performers.

So, where do you start learning what you should know (besides the obvious answer -- here at the Fool)? Start with a book by David Chilton called The Wealthy Barber. It's the most readable and sensible book on basic personal finance issues I've read. You can read it in a long evening and you'll know almost everything you need to know. About 99% of all the more sophisticated stuff out there is fluff you can skip.

The only bone I have to pick with Chilton is that he favors mutual funds on the premise that you can't choose stocks well for yourself. We know that's simply untrue. At the very least you can choose the Dow High-Yield Ten and have a strategy that's outperformed the Standard & Poor's 500 since the 1920s. From there, it's up to you how active you become as a portfolio manager.

But start with Chilton. If you follow his advice (and it's not hard to do at all), you're going to be prepared for retirement, your children's tuition, your dream vacation home, and eventually, the disposition of your estate.

Above all else, do your best to keep your financial planning simple. The more complicated it gets, the more likely it is that your plans are making someone else better off than they're making you. I'm not saying never consult a professional -- there are times you'll need an attorney, an accountant, an estate planner, perhaps, or even an investment advisor -- but if the pro starts pushing very complicated products your way, you can bet they're the ones that will profit him the most, not you. Learn enough to know what you don't need to bother with and keep the rest simple.

Current Dow Order | 1998 Dow Returns

[Robert Sheard is the author of the The Unemotional Investor (Simon & Schuster, 1998) available now at Amazon.com and your local bookseller.]

08/18/98 Close

Stock Change Last -------------------- UK + 5/16 46.50 IP +1 1/8 42.81 MO + 5/16 43.13 EK +1 5/16 86.88

Day Month Year FOOL-4 +1.39% -0.93% 12.92% DJIA +1.63% -1.90% 10.20% S&P 500 +1.62% -1.74% 13.48% NASDAQ +2.04% -0.92% 18.13% Rec'd # Security In At Now Change 12/31/97 206 Eastman Ko 60.56 86.88 43.45% 12/31/97 291 Union Carb 42.94 46.50 8.30% 12/31/97 289 Int'l Pape 43.13 42.81 -0.72% 12/31/97 276 Philip Mor 45.25 43.13 -4.70% Rec'd # Security In At Value Change 12/31/97 206 Eastman Ko 12475.88 17896.25 $5420.38 12/31/97 291 Union Carb 12494.81 13531.50 $1036.69 12/31/97 289 Int'l Pape 12463.13 12372.81 -$90.31 12/31/97 276 Philip Mor 12489.00 11902.50 -$586.50 CASH $754.73 TOTAL $56457.79