| Complete Book Title | The Simple Path To Wealth: Your Road Map to Financial Independence and a Rich, Free Life |
| Author | JL Collins |
| Year Published | 2017 |
| My Rating | 4.5 out of 5 stars |
| Must Read | Yes (make it THE FIRST book you read) |
“When you can live on 4% of your investments per year, you are financially independent.”
Simple Path To Wealth, JL Collins, page 3
Overview
The book, The Simple Path to Wealth, is viewed as the GOLD standard of personal finance books within the financial independence community. It is the invest it and forget it strategy that will lead you down a path of financial security by investing in low cost index fund(s). I’m giving this book a solid 4.5 out of 5 stars because it is sound advice — it is the meat and potatoes that everyone needs in their life. It is the same meat and potatoes that I have incorporated into my journey since I was the age of nineteen (at the time of this writing, I’m forty-five). I didn’t give this book 5 out of 5 stars because I felt it was very heavy on the vegetables and for most, it may not solicit a strong reaction to start their journey today.
In a time when everyone wants the get rich quick scheme (Bitcoin, Gamestop stock, penny stocks, day trading, etc.), I’m afraid this book could land on deaf ears because there isn’t anything super exciting about the information… unless retiring with millions in your retirement portfolio (30-40 years from now) is exciting.
This is the ONE book that everyone needs to read… so, eat your darn vegetables and put the plan in action.
The Ultimate Set of Love Letters
JL Collins published this book after he decided to polish his blog posts into a more readable format for those that would become his interested readers. The inspiration behind his blog posts were for his daughter as he wanted to teach and educate her on the path to financial independence. He did this through a series of letters he had written during her teenage years. For this reason, I believe this book is the ultimate set of love letters. It is exactly what every parent wants for his or her kids… to put them on a path that is better than the path we may have taken. Likewise, I’ve also been working with my kids to start their retirement savings from the very first dollar that they made.
The Simple Path to Wealth
JL Collins has structured the book into four parts:
- Orientation
- Harness the world’s most powerful wealth-building tool
- Magic beans
- What to do when you get there
This could be the shortest review as I don’t want to give away JL Collins work and it is truly simple. It’s an instruction manual. The beauty of this simple path to wealth is that anyone can put the plan into place and have confidence they are building a portfolio that will survive and flourish through the market’s ups and downs — when you consistently invest in the market over the long haul (20, 30, and 40 years). The history of the stock market is on your side and has yielded 11%+ gains.
For the book, JL Collins provides a few guidelines that you should consider as you read and put the content into practice:
“If your lifestyle matches – or god forbid exceeds – your income, you are no more than a gilded slave.”
“Avoid fiscally irresponsible people. Never marry one or otherwise give him or her access to your money.”
“Avoid investment advisors. Too many have only their own interests at heart. By the time you know enough to pick a good one, you know enough to handle your finances yourself. It’s your money and no one will care for it better than you.”
Simple Path To Wealth, JL Collins, page 1-2
Orientation
In Part 1, Orientation, JL Collins lays the foundation for you to begin taking control of your finances. As with any good financial steward, the advice is that you need to get control of your debt and eliminate it. Debt is the “unacceptable burden” (page 20). Debt diminishes your lifestyle, enslaves you to the debtor or your job, increases your stress levels, limits your options, and focuses your attention on the past and not the future.
JL Collins explains that you should avoid debt at all costs, but if you find yourself in debt he also provides a workable strategy and guideline on getting it paid off: slowly, at your pace, and immediate. He also addresses the cautionary words of “good debt” that most people use when discussing mortgages, student loans, and business loans.
At this point, we start looking at wealth accumulation and the importance and strategies to put this in motion. Concepts such as “F-You Money” (yes, you read that correct… F*** You Money) and answering the question “can I really retire a millionaire” (pages 31 – 38). JL Collins also addresses the many concerns about investing in a bull market as well as a bear market and provides many examples of the historical stock market when viewed as long-term investing — “successful investing is by definition long term” (page 49).
How to harness the world’s most powerful wealth-building tool
In Part 2, How to harness the world’s most powerful wealth-building tool, this is where it starts to get good. JL Collins takes head on the fear factor that many have when it comes to the market and the potential market crashes, the market pullbacks and the potential recessions — “market crashes are to be expected” (page 59). Depending on how old you are, you may have witnessed one or more of these market pullbacks or downfalls:
- 2008 recession
- Great recession of 1974-1975
- Massive inflation of the late 1970s and early 1980s
- Tech crash of the early 1990s
- September 11 (9/11)
Even through all of these, the stock market has always recovered and has always gone up. NOTE – although this has been true, nobody can predict the future… and if this graph and the stock market turns upside down, we have bigger issues to worry about.
In order to reduce risk and to take advantage of the growth that has happened over the decades, the strategy isn’t in picking individual stocks as it is difficult, nearly impossible, to pick the winners and losers. The strategy is to find an index fund that invests in the Total Stock Market. JL Collins and many in the Financial Independence community invest in VTSAX through their Vanguard account.
JL Collins spends time to share the foundation behind the index funds, the strategy to create a comprehensive retirement/investment portfolio based on age, and how the index funds are “self cleansing.” A low cost index fund is the true holy grail to your financial success on your journey towards financial independence.
The other beautiful thing about index funds is that it is truly a way for you to take control of your finances and be a true do-it-yourselfer. Most people will think investing is complex and that you need a professional; such as a financial advisor. I agree with JL Collins in that you do NOT need a financial advisor. In fact, you would most likely be better off NOT having a financial advisor as the fees (even at 1% to 2%) eat into your growth. And the data, as described in the book, supports this!!! The one exception is if you can find a financial advisor that is a fee-based financial advisor (basically, paying them for their time like you would a consultant).
“Over periods of 15 to 30 years, the index will outperform 82% to 99% of actively managed funds.”
“These annual fees are a devil’s ball and chain on your wealth.”
“Compounded over time, the amount lost is breathtaking.”
The Simple Path To Wealth, JL Collins, page 93
For the remainder of this section, JL Collins discusses the following:
- Portfolio ideas to build and keep your wealth
- Asset Allocations – Stocks, Bonds, etc.
- International Funds
- TRFs, 401Ks, 403Bs, TSP, IRA, and Roth
- RMDs
- HSAs
If these terms and alphabet soup is unfamiliar to you, you will definitely want to read these sections. I’m not going into detail on these in my summary as I want to make sure you read JL Collins book and his thoughtful insight into the programs and how to take advantage of them for your wealth accumulation. I want you to have confidence that these sections should address and answer many if not all of your questions to get you started on your journey.
Did I mention this book is an instruction manual for your retirement success?
Magic Beans
In Part 3, Magic Beans, JL Collins provides additional information on Jack Bogle and the beauty and simplicity of index funds. And with any disruptive strategies that go against the traditional norms, you have the naysayers. Although you have many in the industry trying to prove their worth, Jack Bogle brings the receipts and demonstrates the value of index funds versus the normal strategy of trying to pick the winners and losers. You don’t even have to take Jack Bogle’s or JL Collins’ word for it… how about from one of the best and most successful investors of all time, Warren Buffett and his Berkshire Hathaway 2013 annual shareholder letter:
“My advice… could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.)”
The Simple Path To Wealth, JL Collins, page 186
What to do when you get there
In Part 4, What to do when you get there, the assumption is you have followed the simple path to wealth and are now sitting on a retirement nest egg that should be able to sustain you during your retirement years. JL Collins shares the information that was published from the three Trinity University professors in their 1998 study that looked at safe and effective withdrawal rates. This is known as The Trinity Study or also the 4% Withdrawal Rule.
This entire section provides the guidance you will need on how to pull out the 4% from your various accounts that you may have setup over the years. It also provides guidance on how to rebalance as you age (i.e. rebalancing from all or majority stocks to increase your allocation in bonds). JL Collins goes in depth on the mechanics on how to successfully pull out your money in your retirement years.
Lastly, JL Collins also shares his perspective on Social Security, the viability of it, and how he is putting in a strategy for him and his wife.
Summary
In summary, I couldn’t recommend this book enough. It is your vegetables that you need. If I could, I would force feed it down everyone’s throats because it is THE book that you didn’t even know you need. I truly hope you read it and and let me know your thoughts after doing so. You can even follow JL Collins via Twitter or his very own blog.
Lastly, JL Collins was recently on the ChooseFI Podcast #284 (January 4, 2021) being interviewed by Jonathan and Brad. This was an update from his earlier appearance and it is worth the watch if you want to hear directly from the author.