You’ll be shocked to hear this, but before I read JL Collins’ book “The Simple Path to Wealth: Your Road Map to Financial Independence And a Rich, Free Life,” I did not 100% understand the rationale behind my own stock market investments.
If you tried to click away from this article after reading “stock market investments,” then this post–and this book–are for you. I too used to zone out anytime someone so much as said the word “stock” unless it was preceded by “chicken.”
Soldier on partner and I’ll reward you with a Frugal Hound pic if you make it to the end–no scrolling without reading (I’ll jump through the internet and whack you on the wrist). I learned A LOT from Collins’ book. Hence, this is not some BS book review I’m writing because I feel like I have to. I’m writing this because I am on fire with knowledge! Fire, I tell you.
A disclaimer that I am not a trained financial professional and I encourage people not to make serious financial decisions based solely on what one person on the internet advises. I am not a financial advisor and I am not your financial advisor.
Keep Reading To Find Out My Grad School Econ Grade
As regular readers know, I don’t often review books, products, or much of anything here on Frugalwoods. Except in extremely rare cases where I truly believe in something and hence, think you all might be interested too.
When I found out my friend JL Collins was writing a book, I knew it was something I’d want to share. Because Collins’ site is my go-to for sane, rational investing intel. I tout the mantra of a “set it and forget it” investing mentality, but Collins provides the explanations, theory, and historical data for precisely why this approach is wisest.
In his book, Collins sets forth his straightforward financial guidance in a humorous, easy-to-understand, and delightful pattern. This is no dry economics text. This is no tortured fiscal advice column thinly disguised as a way to peddle unneeded financial products and services. Nay, my friends. This is some candid, honest, really good (and really well-written) financial truth-telling.
If you’ve ever wanted to understand why nearly all of us early retirement/financial independence writers* adhere to what’s often termed the “Bogleheads” method of DIY long-term low-fee index fund investing—and if you’ve ever wanted to do it yourself—then Collins’ book is for you. I’m the first to admit I’m not a financial expert, nor am I an economics whiz (laboriously eking out an A- in my grad school econ course remains my highest and most distinguished accomplishment). And yet, I enjoy personal finance. Collins’ book is the perfect illustration of why I feel this way.
*Coincidence that those of us who retire early follow this investing methodology? Methinks not.
For the Love of Frugal Hound, Manage Your Money Yourself!
Managing your money yourself—and growing your wealth—isn’t about complex day trading or bizarre get rich quick schemes, it’s about following Collins’ simple premise of “spend less than you earn—invest the surplus—avoid debt.” That’s basically it and we could stop right there. Fortunately for us, Collins goes on to outline exactly how to do this, particularly the “invest the surplus” element, which is absolutely crucial if you want your money to, ya know, grow.
I receive a veritable ton of questions from readers asking how to start investing and how to manage investments, and I’m so glad that I finally have an answer for all of you: read JL Collins’ book! I agree with his philosophy, I like his writing style, and he’s a supremely nice guy to boot. So I’m sorry for all of the emails, tweets, and comments about investing that I haven’t previously replied to—please consider this your answer!
The only appreciable difference in Collins’ investing approach and ours is that he’s invested in Vanguard’s Total Stock Market Index Fund (VTSAX) and we’re invested in Fidelity’s Total Stock Market Index Fund (FSKAX).
VTSAX and FSKAX are both low-fee index funds offered by the brokerages of Vanguard and Fidelity; there are other brokerages offering similar. The salient point with a total market index funds is that your money is spread across a large number of funds in the broader stock market and you pay very low fees.
The best part about this investing approach is that you can do it yourself. We frugal weirdos are inveterate insourcers, so this is fabulous news! I choose not to pay a professional to manage my funds for me because managed funds typically deliver lower returns than low-fee index funds. Collins puts an even finer point on it: “82% [of managed funds] failed to outperform the unmanaged index. But 100% of them charged their clients high fees to try.”
And in case that first quote didn’t drive it home clearly enough, here’s another Collins zinger: “…the simple truth is this: the more complex an investment is, the less likely it is to be profitable. Index funds outperform actively managed funds in large part simply because actively managed funds require expensive active managers.”
So why do such things as managed funds and so-called ‘expert market predictors’ exist, you might wonder? Because there’s money to be made in trading on the fear and greed that motivate most investors. Plus, as Collins adeptly notes: “Nobody is going to sit glued to their TV while some rational person talks about long-term investing.” And there it is. Long-term, low-fee index fund investing–much like frugality–does not generate revenue for businesses, banks, and marketers; hence they rarely show up in mass media. Consequently, you have to read about them from weirdos like me and JL Collins and, as a result, put up with the odd greyhound photo or two. You’re welcome and I’m sorry.
Would You Like To Start Investing Today?
Have I sufficiently lit the investing fire ‘neath your rear? I’m glad to hear it! While I’m invested in Fidelity’s total market index fund, there are a number of options out there. What I always look for are the expense ratios (also called fees). Two other examples: Vanguard’s VTSAX has an expense ratio of 0.04% and Charles Schwab’s SWPPX is 0.02%.
When I decided to start investing years ago, I signed up online with my brokerage (Fidelity) and selected their low-fee “Total Market Index Fund.” I then had to decide how much money I wanted to transfer from my checking account into the stock market. It was essentially the same process as setting up any other online banking account.
The caveat here is that I encourage you to read Collins’ book before you start investing so that you understand why and what you’re investing in, but the actual mechanics of investing are ludicrously simple. I’m pretty sure it would be more difficult to buy a trash barrel on the internet (awkwardly sized! who will deliver?!).
Before I started investing, I though the mechanics were complicated, which I’m sure made the well-paid fund managers on Wall Street delighted that their subversive marketing worked!
The overarching message Collins conveys, which I agree with, is that investing is not a short-term proposition. No one can beat the market and no human* knows when to buy and when to sell and so, one should simply remain invested for the long-term. That’s key to understand: there are only gains to appreciate for those who buy and hold, hold, hold.
By the way, in case you’re wondering, I’m not a financial advisor of any sort and neither Fidelity nor Vanguard pay me any money to tell you this.
*Humans, no, but John Oliver recently introduced us to a stock-picking cat (yes, an actual cat) who apparently knows what’s what. P.S. The fact that a cat (yes, one that meows) beat out managed funds should give you a sense of how worthwhile they are…
It’s More About Your Mindset Than Anything Else
As is so often the case with financial management and frugality, Collins illustrates that it’s much more about your mindset than about doing complicated acrobatics with your money. As Collins articulates: “… you must recognize the counterproductive psychology that causes bad investment decisions—such as panic selling—and correct it in yourself.”
Collins challenges readers to overhaul how they think about money. Citing the fact that countless ridiculously wealthy people—celebrities, doctors, ahem Wall Street folks themselves—go broke thanks to their lavish lifestyles, Collins encourages us to, “Stop thinking about what your money can buy. Start thinking about what your money can earn.”
Furthermore, far too many of us allow fear and greed to rule our financial decisions. But as Collins adroitly explains, fear and greed are folly. It’s all about taking a rational, long-term approach to investing, saving and spending. Fear will prevent you from deploying your money in beneficial ways—that is to say, investing. And greed is equally devastating as it can cause us to try and time the market–jumping in an out when we perceive we’ll net the largest return. But attempting to time the market is nothing more than a fool’s errand.
Another aspect of Collins’ book I found useful are the diversity of age perspectives he offers. Collins and his wife are in their 60’s and their daughter in her mid-20’s–through these two lenses of his personal life, he discusses both the wealth accumulation and the wealth preservation phases of investing, which makes the book applicable to readers of all ages.
Financial Independence, Debt Avoidance, And Good Quotes
Financial independence is not complicated to achieve, but it does require a very specific mindset: the disavowal of consumer culture, a commitment to saving, and ultimately, a delight in creating a good, simple life (which, not coincidentally, includes simple investments).
In his chapter on debt, Collins speaks of the predilection of credit card companies to charge insane interest rates and asks, “Did these people [his credit card company] think I was stupid!? As a matter of fact they did.” And this is so tragically telling of the rampant financial illiteracy in our country.
It’s not our fault–we’re not taught about financial management in school and then the media and marketing bombard us with the impression that growing wealth and managing money is ridiculously complicated.
In reality, it’s not. It’s just that, “…debt has been promoted as, and largely embraced as, a perfectly normal part of life.” But debt does not have to be part of your life, and you don’t have to be restricted by its shackles.
This book is rife with zingers and quotable moments–as well as laugh out loud instances (which Mr. FW can attest to as I guffawed while reading, then he’d say “what??!!” and I’d have to read the line to him). But perhaps the most crystallizing, clarion call of the entire book is this: “There are many things money can buy, but the most valuable of all is freedom.”
Boom. Couldn’t have said it better myself. At the end of the day, you can tally up the excuses for why you’re not saving more of your money, but this is the ultimate truth. Since I’m on a roll with quotin’ Collins now, here’s another one of my favorites: “Being independently wealthy is every bit as much about limiting needs as it is about how much money you have. It has less to do with how much you earn—high-income earners often go broke while low income earners get there—than what you value. Money can buy many things, none of which is more important than your financial independence.”
Do Not Ignore Me (and by “me” I mean your $$$)
I know it’s tempting to cover your ears, shut your eyes, and start belting out “Yankee Doodle” anytime you hear the words “investing” and “money management.” Why do I know this? Because I used to be that Yankee Doodling person. But here’s the thing: if you don’t take charge of your finances, you’re shooting yourself in the proverbial foot. No one else is going to manage your money as well as you will yourself. And the only person who truly has your best financial interests at heart? Oh yeah, that’d be you. So do yourself a solid, check out Collins’ book, and then manage your money like the boss you know you are.
Need a bit more motivation? Read on:
For me, the pursuit of financial independence has never been about retirement. I like working and I’ve enjoyed my career. It’s been about having options. It’s been about being able to say “no.” It’s been about having F-You Money and the freedom it provides. It’s a big beautiful world out there. Money is a small part of it. But F-You Money buys you the freedom, resources and time to explore it on your own terms. Retired or not. Enjoy your journey.
I think we all know that “F” stands for Frugalwoods here. Yes indeed, I want you all to have your very own Frugalwoods-You Money, because with that money, your world is suddenly your own. You can stop working a job you don’t like to support a lifestyle you don’t enjoy to impress people you don’t care about. And instead? You can find fulfillment by pursuing your passions. THAT’s what F-You Money is all about.
Of course this is a gross oversimplification as I attempt to distill an entire superb book into a brief post. So, before I quote the entire tome, I think I’ll just stop and encourage you to read the book for yourself. Then go start investing!
note: the book links in this post are affiliate links.