The Simple Path to Wealth by JL Collins
I had never heard of JL Collins until Kindle Unlimited was offering his book in September. I find I agree with most of his thinking.
I only differ in one respect, which I will discuss below.
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A large part of this book is about investing in Vanguard Total Market (VSTAX) and Bond Funds (VBTLX.) I agree with him on this count, as my grandmother instilled the values of Bogle and Vanguard when I was still in my teens. She used those low cost funds to build her retirement accounts.
I currently hold 10% of my portfolio in VBMFX, the investor share option of the Total Bond Market Fund.
JL Collins is a big proponent of not using investment advisors, since they do not have your best interests at heart. They are compensated on trading fees, commissions, or as a percentage of your portfolio. Simple Vanguard funds as described in the book have fees of 0.0005% to 0.0015%, much less than the typical managed portfolio of 0.02% (2%.)
The book starts out about debt. He calls debt the most dangerous obstacle to building wealth. My opinion is, in rare instances, debt is great if you can use to improve operations, grow sales, etc, but consumer debt is horrendous. Even a home loan is dangerous if you buy more house than you need or can afford.
Without debt, most of us would be living in much smaller houses, possibly have a trade instead of a college education and drive a no-frills vehicle. Yet most would probably be happier and less stressed.
“If you intend to achieve financial freedom, you are going to have to think differently. It starts by recognizing that debt should not be considered normal. It should be recognized as the vicious, pernicious destroyer of wealth-building potential it truly is. It has no place in your financial life.”
You are a slave to your debt. His thoughts to eliminate debt:
More than 5% interest pay immediately before other savings. Guideline:
- Make a list of all debts.
- Eliminate everything not necessary (no eating out/coffees, cable, etc.)
- Start paying extra on highest interest rate and the minimum on everything else.
- Rinse an repeat.
Next is F- You Money. I personally keep $30,000 in a MMA account. That is basically one year of our basic living expenses. I have no debt outside of my mortgage (my wife has some student loan debts, but if I lost my income, the repayment would shrink considerably.) My mortgage is only $855 per month, including insurance and taxes. I can and have left jobs that I do not like with that security. I also have paid cash for a new roof and AC over the past 3 years.
I’m 40 now, but have not lived paycheck-to-paycheck since I was 25. It’s a good feeling.
Next he talks about compounding and retiring a millionaire. In the period 1975 – 2015, the average annual return was 11.9%, with dividends reinvested. Less than $150/month would have gotten you there.
However, the money does not matter if you cannot control your spending. It’s more about whether you can live within your means and control spending.
Like I said, I spend approximately 30,000/yr, so I could effectively retire with $750,000. My goal is a $1,600,000 net worth, but $240,000 of that is earmarked for our home. My personal home has a value of $109,800 currently, so I can upgrade if I choose.
“Spend less than you earn – invest the surplus – avoid debt”
Most people lose or have inferior returns due to market timing, picking individual stocks, picking mutual fund managers they think can beat the market, and what he calls foam (trading and following CNBC (I did this with SIGM after Jim Cramer said it would be next RIMM.) Both are obsolete now.
My one difference in opinion is I do a variation of market timing. I stay in cash and 10% VBMFX when market cap to gdp is over 120%. At 90% Market Cap to GDP and under, I am 100% equity. I’m about 75% stocks and 25% cash and bonds between 90-120% market cap to gdp. I have missed some great returns since June 2016, but I haven’t lost any money either.
Simple is Good! VTSAX/VBTLX/Cash. His recommended ratios are 75% stock 20% bond and 5% cash or 90% stock if you are far from retirement.
My personal ratios currently are 5% VSBSX, 10% VBMFX and 85% short-term CDs, all in a personal IRA. I do maintain a taxable account that I trade in. I lose more than I win, although a few winners like CVX and AAPL have more than made up for the losers. Even with that, my return is about 5% below annually what could have been if I followed the same strategies as in my retirement account. Over the past 15 years, that means my account balance should be double what it is now (Rule of 72.)
The book also goes into various retirement strategies. With TCJA, some changes may have occurred, but you can buy the book or check out JL’s blog to find out more. His blog can be found at jlcollinsnh.com.
Here is a Google talk with JL Collins On YouTube:
All in all, this is a great book for 99% of investors. If you follow his strategies, you will have a lot less work, and most likely be wealthier than the active investor, or those that use companies like Edward Jones, at the end of your working life. It’s a simple book that is probably better than almost every other investing book on the market (I own, but have yet to read, the Intelligent Investor.)
If you need any help with your taxes this year, please reach out to me at ValdostaCPA at Yahoo.com or through Fiverr.
Thanks for the detailed review. I like to read a wide variety of personal finance books and blogs b/c then you can pick and choose what is most useful for your situation. I like Financial Mentor, Daniel Amerman, Financial Samurai, and Bigger Pockets (for real estate). I’m still a buy-and-hold investor (Vanguard too, plus some real estate) for our household finances, but it’s always helpful to read different takes on investing.