JL Collins: The Simple Path to Wealth

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Welcome to the new retirement podcast. Today we're going to be talking with J.L. collins, a best selling author and financial independence guru about the what, why and how of financial independence and his book, the Simple Path to Wealth. We're going to try to distill a lifetime of financial lessons into one podcast and dive into what really matters for most people. JL achieved financial independence through active investing before he learned about passive index investing, but then started a blog and literally wrote the book on how to achieve fi in the course of trying to pass on what he'd learned to his daughter Jessica. He loves to travel and also hosts an annual international chautauqua outside of COVID times around the topic of financial independence. So with that, JL welcome to our show. It's great to have you join us.

Well, thank you, Steve. It's an honor to be here. I have to say initially it's interesting introduction that you mentioned that I my dirty little secret, which is I actually achieved financial independence with active investing even though I'm a big indexer. And the truth is I knew about indexing long before I was smart enough to embrace it. So there's another dirty little secret as long as we're airing them.

Yeah, you know, I was in getting ready for this, I kind of was clawing through your blog, you know, jlcollinsnh.com and you've obviously had a long career and you know, it was kind of interesting. I was hitting some of the highlights that I saw were one, you have this, you've kind of had this really diverse career working across all these jobs, but also that you, you, you achieved kind of financial independence 15 years into your career back in 1989. And I thought that was, you know, so you've, you've been there for quite a while, but kind of your perspective on active versus passive has changed. Any kind of any highlights you want to share with us about kind of your journey to where you are today?

Well, the interesting thing about achieving it in 1989 is I didn't realize it at the time and I think you have to appreciate, and hopefully your audience will appreciate that there was no Internet or very little Internet that no Internet I was aware of in those days. And I wasn't even aware of the term financial independence. I'm not sure it had been coined at that point. So I had frequently stepped away from my various jobs at different times for sabbaticals that I wanted to take. And 1989 was the beginning of the longest of those, which stretched out five years and about three years into it, we had. Our daughter was born. My wife also quit her job, so we had no earned income coming in and our expenses had gone a little bit. And although we lived modestly, and I noticed as I was totaling up the numbers at the end of that third year, something really remarkable, that in spite of not cutting back our lifestyle, we were worth more at the end of the year than we were at the beginning. And then I look back at the first year and the second year and found in both those years, that was also true. And I knew something remarkable had happened. But a little disturbingly, looking back on it now, I wasn't smart enough to really appreciate the significance of what had happened. I just kind of thought, well, that's cool. And I went on with my life. It wasn't years later, until years later when I came across the 4% rule and the idea of financial independence and I put those numbers to it that I realized, oh, yeah, that's what happened back then.

Yeah. And then. So it sounds like that you really kind of got fully engaged in this in 2011 when you started your blog. You kind of put all your thinking together or started to get it all down on paper.

Yeah, 2011 is when I started the blog. And, you know, it's interesting when you, when you start to write things down, you have to think through them a little more clearly than when you just have them rattling around in your head. So from the moment I got out of college, I knew I wanted to have what I come to learn was called FU Money. And I found that in a novel by James Clavell, Noble House. That concept and FU Money in my mind, wasn't enough to never work again. It was just enough that I never had to stay in a job I didn't want to stay at any longer. And I could afford to take those sabbaticals that I talked about earlier. And then it was a journey of different kinds of investing, as I learned primarily by making any every possible mistake you could make. And as I say, I actually achieved financial independence picking stocks and picking active fund managers. I don't recommend that because that's simply not the most effective or efficient way to do it. But it certainly is possible to do it that way. Indexing is just more powerful. And when I finally adopted indexing, and I'd actually learned about it in the middle 80s, so as they say, I was negligent and not embracing it sooner. I mean, things just came to better, came together more easily and even more quickly. And it was in 2011 where I started putting down all these thoughts primarily for my daughter that I really had to think through why I believed at that point, the things I believe.

Yeah, well, it's been quite a journey since then. I mean, for our listeners. As we were ramping our business. I learned about fire. I wrote an article in 2016 and Mr. Money Mustache, JD Roth and JL Coms was on the list. And so I started calling these guys and JL picks up the phone. We still had a few conversations. And then I think that's actually you published A Simple Path to Wealth that year, is that right?

Yes, exactly. The spring of 2016.

Little did I know how famous you're going to get to. And then I saw also in 2018 you had, I think the most popular Google talk or outside of there was some filter for it, but like 750,000 views, is that right for your Google Talk that you did?

Yeah, it's coming up. I don't think it's quite at 750 yet, but it's coming up on that. And if I'm not mistaken, it is the most watched Google Talk is 33 in terms of all the Google talks ever done. It's 33rd, but I think it's the most watched by somebody who's not famous.

Right.

You know, so I mean for somebody who is not a famous person, it's doing pretty good.

You're the most famous, most popular, non famous person, but actually you're becoming famous.

I saw you joined Twitter in some small fashion. I guess that's beginning and nobody's more surprised than I.

Well, I do want to give you credit also. I think vtsax recently crossed what, a trillion dollars. And so I do think you deserve some small amount of credit for I prefer short of it from you. And you know, I know you've been.

I've had people say to me, you know, they make comments along those lines and I do know that some people are in vtsax because of my influence, but I imagine it's a very small point portion of that $1 trillion. And then so far as I know, Vanguard doesn't know that I exist. They say they've never reached out to me and said anything. And of course I'm a Vanguard customer. So when I reach out to them, it's not like, hey jail, how you doing? I'm just like any other customer.

And for our users who are listeners who don't know this. So ptsax is a index fund by Vanguard that covers the whole US stock market at a very low cost. Basis.

Yeah, yeah. It's what's called a total stock market index fund, and it's the one I. I'm personally in. It's the one that I have my daughter in. It's the one I recommend most commonly. And then VBTLX is a total bond market fund for when you add bonds to the mix.

Yeah, we'll dive into that more. But I mean, I will say that finally, after four years, I do own vts. X. Only took me four years to take your guidance and run with it.

Well, it probably took me 20 to finally embrace indexing, so I don't feel bad.

Yeah, no, exactly. I actually was. I was like, well, I kind of feel bad about this. But then I was reading you. I'm like, oh, well, you know, I'll get jl. He actually, he's been doing it for decades, and now here he is.

He was even a slower learner.

All right, so I'd love to talk. You know, this is really about kind of the what, the why and the how of financial independence. So would love to hear kind of from your perspective what, what it is, how you define it, and maybe how you measure it. And I also maybe a little bit more on the FU money because I, I heard. I heard the FU money very early on in my career, too, and it did really resonate with me. And it's something I pursued and achieved, which freed me up to kind of like think more broadly about what, how I spent my time. But. Yeah. How do you define fi?

Well, so first of all, with the caveat that this is just my opinion and other people define it differently. So this is not the definitive definition, but I think of financial independence as that point where you have enough money that you don't have to trade your time or your labor for money. You have enough money that the money that. That money earns is enough to pay all of your bills. FU money, on the other hand, in my mind, and again, other people define these things differently, is simply having enough money that you can make bolder choices in your life, but not necessarily enough money that you're never going to work again. Now, as to the formula as to what financial independence looks like, I think I referenced a little bit earlier in the conversation the 4% rule. And that simply suggests, and it's more a guideline in my mind than a rule, that if you have enough money that 4% of that is equal to or greater than your annual expenses, you are by definition financially independent. So if you have a million dollars, 4% of that is $40,000. If you are spending $40,000 or less, you are financially independent. If you are spending more than $40,000, then you are not quite there yet. Although you have a very nice pile of FU money.

Yeah. Assuming you're invested efficiently with low costs and kind of getting market, average market returns for the last, whatever, history.

That's a great point. All of this is dependent on investing in low cost index funds. If you're investing in something else, then these parameters may or may not work.

Got it. And how did you define FU money for yourself? Like, what was the threshold?

So the very first time I had what I considered FU money was in my, I guess, mid-20s. I managed to save the princely sum of $5,000. Now, of course, $5,000 was worth more back in those days than it is now, but not that much more. But $5,000 was enough that I could have quit my job and gone off and traveled in Europe for a year. $5,000 certainly would have lasted a year in Europe at those days and probably, probably would have given me a little cushion when I got back to find another job. So as they say, it was just permitted me the opportunity to make a bolder choice than it had then if I had been living paycheck to paycheck and worrying how I was going to pay the rent.

Yeah. And did you? It sounds like you've taken sabbaticals, so you kind of deployed your, you know, your savings to free up your time then early on.

Exactly. Again, remember, I had no concept of retiring early or even financial independence as a, as a goal. I just knew I wanted to have enough money that it provided for, to me it represented freedom. And I knew the more I had, the more power I had, if you will, the more freedom I had, the bolder I could be in my choices. But, but I actually achieved financial independence without even being aware of the concept. But that allowed me to periodically step away from jobs and take sabbaticals. And I always liked working. My goal was never to retire early. And I think even if I'd been aware of that concept, I don't think that would have appealed to me. I liked my career, I enjoyed it. I just didn't want to have to do it all the time. And I think because I didn't have to do it all the time because I could step away whenever I chose. That's probably one of the reasons I enjoyed it as much as I did.

Yeah, this, this concept of mini retirements, sabbaticals is, I think, a great idea. And, and Probably. You know, it's kind of interesting what's happening with COVID where people are going remote, they're trying out different areas. One guy on our team is about to move from Vegas to Idaho. And, you know, they're. The circumstances of their life changed, and they just were like, okay. First I think they were thinking, oh, I'll just move somewhere locally. And then they were like, where could I move that's completely different and brand new, and they're making this move. I think he actually bought a house without visiting it, just completely online in Idaho. We'll see. I actually have to talk to him about. Get the exact details. So how about for your career, did you use beyond travel, take any extra risk in your career? I mean, you've done so many different things.

Well, I suppose the risk I took was occasionally stepping away from jobs, but I had a pretty good. I was mainly spent most of my career in the magazine publishing business, and I had a pretty good reputation in that business. Now, back in those days, stepping away from a job for several months or on occasion, several years was not very well accepted. And so I had to be creative with my resume at times to account for those. For those gaps, so to speak. But, yeah, I was pretty. It was pretty easy for me to step back in when I chose to step back in. But again, you know, I was never in a situation where I had to worry about paying the rent or the mortgage or putting food on the table because I'd always saved 50% of my income. And it built up this pile of fu money that gives you a lot of freedom, a lot of power.

Nice. And how did you make that transition from kind of active to passive? Was it like hitting a switch, or did you kind of do it over time?

Yeah, it's an interesting question, because in the mid. Sometime in the mid-80s, I had a friend of mine who was a financial analyst, and he was the one who first brought passive investing, which is to say index funds, to my attention, and Vanguard and Jack Bogle. And the great irony, by the way, is Jack Bogle started Vanguard, and I believe he started the first index fund, an S&P 500 index fund, in 1975. In 1975 was the very first year I. I ever invested in anything. Of course, I bought two individual stocks because. And in 1975, I didn't know about Jack Bogle or Vanguard or index funds, but around 1985, my buddy Albert talked to me about them and made the case for them. And I was just too bullheaded and stubborn. And set in my ways to appreciate the wisdom of what he was sharing with me. And we had conversations over the years and it probably took me 10, 15 years before I really finally looked at it with an open mind. And once I did, it just became obvious that it was the better way. I think in my defense, one of the reasons that it took me a while is the picking active managers. Running active funds and selecting stocks had worked out pretty well for me. I mean, again, I reached fid doing that. So in a sense, I suppose my attitude was what I'm doing isn't broke, so why fix it? But a more astute person would have had their eyes wider open and said, oh, wait a second, this, this, this way's worked out okay, but this is a better way. And they would have seen that sooner. In my defense, I did eventually see it. I'm just slow.

Well, you're still ahead of most of the market. I mean, I think if you look at a chart of, you know, it's like exponential growth of kind of the passive and index investing in the assets there was, it was pretty low. I mean, I don't know the exact numbers, but it was low. 1975. And then 1995 is still like nothing. 1995 is still nothing. And then eventually, only in the last decade has it really gone almost straight up. And now it's threatening. So vanguard the other year was like last year was attracting a billion dollars a day inflows. And it wasn't necessarily so. It was huge. But now the more active oriented firms are feeling this. So you're starting to see passive index is really growing and active fund managers and families are losing assets. So they're feeling it. And it'll be interesting to see does the pendulum swing back and forth? Because I think there has to be a certain amount of active investing for price discovery. But how much, who knows? I don't know if you have opinions on that.

So this is an interesting subject and if you'll indulge me, I'll talk about it a little bit. When Jack Bogle first came out with the idea of index funds, he was roundly ridiculed. Fidelity. Ned Johnson, who started Fidelity, he's the patriarch of the family that owns it. And he ran a series of ads which Bogle evidently had framed and put up in his office condemning index funds, calling them un American, among other things. Because I think he recognized the incredible threat that they posed to the golden goose that was high fee active management. And you're right, it was very, very slow to catch on because it's so counterintuitive. And again, maybe this is part of my own defense. You know, it's very counterintuitive for somebody who's picking stocks and to accept the fact that, gee, if you just buy every stock, you will do better. As you think to yourself, well, gee, if I just avoid the bad ones, I can outperform the index. But of course, sometimes those bad ones are tomorrow's awesome turnaround stories. You think to yourself, well, if I just buy the good ones, then I can surely outperform the index. But of course, today's good ones are tomorrow's enrons, right? So it's amazingly difficult to outperform the market. They actually pick stocks that will outperform to avoid those that were underperformed. Then when you add on to that the layer of cost that active management requires with the managers and the research and the analysts and what have you, it becomes literally impossible over extended period of time. I happen to see an article today, as a matter of fact, about the Harvard endowment. Harvard has an incredibly large endowment into billions of dollars. About 20 years ago it was outpacing the market. And when I say the market, I mean the index, the broad based market for almost decade or so. And they were lionized. In the last 20 years they've lagged behind. And the article talks about a lot of reason this may be the case, but my only takeaway from it is it's almost impossible to do that consistently. And in fact, research indicates that looking out 30 years, less than 1% of active managers succeed in outperforming. And that's statistically zero. So yeah. Now, in terms of is indexing going to take over the world? It's certainly grown in leaps and bounds, as it should, given how well it performs and more and more people become aware of it. I happen to think that the narrower the actively traded part of the market becomes, the smaller it becomes, the easier it will be to outperform. And so I would anticipate at some point, as indexing becomes, if it becomes dominant enough, and I'm not convinced that it will, but if it does, I think at some point we'll begin reading stories. And of course there's so much money to be made in active investing, you can be sure those stories will appear the moment they're available. We'll read stories about people outperforming and then because people are always looking for a better mousetrap, the wheel will turn and people will flood back into those funds. At least the silly people will. The smarter People will realize that this too will pass and will stay the course with their index funds.

Yeah. Yeah, that's awesome. So just a little bit more on kind of financial independence in terms of how do you think it benefits both individuals and society for people to be pursuing this? And also do you think that kind of average, normal people, and can anyone pursue this idea?

So that question covers a lot of ground. So for the easiest part of that question to answer is the individual. So clearly, if you value your freedom, if you value having control over your time, the more financially independent you are, the better off you are. Money is the single most powerful tool humans have created. And we live in a very complex modern society. And it's the tool most effective in navigating that society. And so those people who learn how to deal with money, how to navigate with it, how to invest with it, have a better life, a freer life, a life of more opportunity than those that don't. I think by extension, that is probably good for society. It's probably good for society to have freer, at least if you believe in a free society, to have people who are freer than. Less free. And I think to the extent that people are free to choose what they want to do, what they're really passionate about without worrying about paying the bills, which is what financial independence gives you, you'll probably get happier, more productive, more effective people. Maybe I'm an example. You know, you mentioned that in 2011, you know, I started writing this blog and then I wrote this book. And this has certainly been, although it comes late in my life, the most satisfying decade of my life. Maybe if I'd been more aware of the goal of financial independence and been aware of what I achieved back in 89, you know, these last couple of decades would have been even more productive than they have been. Although I really can't complain about them. And I forgot the second part of your question at this point.

No, I think that's right. I was. I was curious about kind of like, how does it help society and individuals? And I agree, like, if they. If people free up from or are kind of free to pursue what they are most interested in, then they tend to do better work like you're seeing in your own life.

And you just reminded me of the second part of your question, which was, can everybody do it? And the answer to that question is yes, I think almost everybody can do it. The more interesting question is, will they? And the answer to that question is no. Most people will never take it on. Most people are not even Aware that it is a possibility or an opportunity. We live in a culture and are surrounded by media that's continually drumming into people's heads that such things are impossible, that they're not even making enough money to live on day to day. And there's never any discussion as to how the choices individuals make influence that. So most people, in short, are goofs with their money. And so I don't think most people will ever be financially independent, but I think almost everybody could if they were aware of it and we're willing to choose it. Because of course, like any choice you make in life, when you choose buying your freedom, you have to divert money from buying other things. And that's not a choice that our culture supports.

What percent of people, if you had to give an estimate, do you think might take on attempting to get to fi?

You know, I wouldn't even hazard a guess. What I will say is that in the FI community, there is a sentiment that this makes so much sense, which it does. That it's so logical, which it is. That it's so beneficial, which it is. That almost inevitably more and more and more people will be drawn to it until the large percentage of the population, maybe everybody is embracing it. I don't happen to fall into that camp. I think people pursuing FI are destined to be unicorns. It's just like we've seen more and more people go to index funds. I think the moment there's any indication that there is some possibility of actively managed funds outpacing them, they'll flood back the other way because people are fickle. They're not willing to stay the course and appreciate the benefit. So, yeah, I think. And the other thing I would say is that while there's a lot being written in the FI world today, we're tiny drops in a huge bucket that mostly promotes commercialism, mostly promotes that you need a break today. And you deserve this and you deserve that. And of course, all those things that you deserve are things that other people are trying to sell you.

Yeah, for sure. Well, I would love to dive into kind of what really matters in terms of how to get there. And, you know, I was reading your blog again, and you know that you have the. The nine basics. Can you take us through the. The nine basics?

It's been a while since I've written it. I would have to pull those up in front of me. In front of me, myself.

Okay. I have them in front of me. So we. I can. I can. I can do it. And then we can talk about it. If you want?

Sure, sure. So that's why that's one of my very earliest posts.

First, avoid fiscally irresponsible people. Never marry one or otherwise give him or her access to your money. You know, any color commentary on that?

Sure. So, you know, one of the biggest destroyers of wealth is divorce. And I can imagine few things that would be more discouraging than to be married to somebody. And while you're diligently saving and investing and trying to build your fu money into financial independence, they're out squandering it. So I think it's important to be sure that if you tie your life to somebody else, that you share lots of values. And one of the more important ones is probably, is probably your values around money. And I, by the way, my wife and I never had that discussion when we were dating. And just very fortunately for both of us, as it happens, we share exactly those values. Maybe we got that sense of each other as we were dating without the conversation. I've gotten pushback on that point, by the way. People have said that's terrible. You should only marry for love. Well, yeah, good luck with that. And that's why people wind up getting divorced. So be a little more clear eyed in that decision would be my advice.

Did you make her go Dutch when you were having your first dates and she got.

No, I can't say I ever did that. But. But that was, that was a different era too.

I do see people talking about this in like the Choose Fi community where they're talking about their significant others and trying to educate them about fi or saying, hey, this person is, you know, just kind of got a new job and bought, you know, a brand new car. And that's got me worried. So, second one, avoid money managers. So sounds like, yeah, love to hear your take on this.

Yeah. And by the way, on all these points, I have posts on the blog and most of them are chapters in the book. So money managers are expensive always and it's very rare to find a good one. It's an unfortunate fact that the interests and needs of a money manager are not aligned with those of the client. And so that means that money manager, to do best by their client is frequently called upon to do things that are not in their own personal best interest. That takes a pretty saintly person to reliably do that. So it's very difficult to find one that's good and competent and honest. I suggest that by the time you do the kind of homework you would need to recognize that kind of money manager you could have easily taught yourself to do it yourself. A great example real quickly of what I mean by those conflicting interests is let's suppose you sit down with your money manager and your question is, should I pay off my mortgage? Well, that's an interesting question. And in some cases, the answer might be yes. In some cases, the answer might be no. For your money manager, it is always a bad idea for you to pay off your mortgage because by definition, that takes capital. That person is managing for you and getting paid on, away from your portfolio and into the bank, paying off that mortgage. So for that money manager to recommend you pay it off, regardless of how good a decision it might be for you, they have to decide to make a decision that is bad for them.

Yep. No, exactly. It's. I mean, more and more. Well, some investment advisors are fiduciaries and they're supposed to act in your best interest. But we had another guest, one of our users, Glenn Nakamoto, he was talking about building a retirement income and paycheck, and he wanted to take a third of his assets and buy immediate annuities. Now, you can debate whether or not it's a good idea, but he couldn't get any. Any advisor. And he talked to a number of them who were all fiduciaries to say, hey, this could work. Instead, they wanted to do bond ladders or other kinds of fixed income strategies that they would manage the money. And he felt like they had a conflict of interest. But they weren't calling that out, clearly.

Yeah. So, first of all, just to be clear, there are good, competent, honest financial managers out there. I don't mean to suggest that there are not. And kudos to those that are, because they're providing an incredibly important service. Because most people, as I said earlier, are goofs on their money. And if they happen to stumble into the hands of somebody who's competent and honest, they've just gotten an extraordinary blessing in their life. So I salute those kinds of money managers. I just suggest that it's very, very difficult to find them, or for that matter, to recognize them when you do. And one last point I'll make is, yes, you should certainly expect and only look at money managers who are fiduciaries. But just because they are fiduciaries doesn't mean that they actively put your interest first. It means they should, means legally they're required to. But as we all know, people don't always do what they should or even what they're legally required to do. So that alone is not a guarantee.

Yeah, it all starts with education and kind of making your own decisions and being a critical thinker. So next one, avoid debt.

Yeah, debt is. You can't be financial independence carrying debt. You know, debt is a ball and chain around you. It's like trying to run a sprint with a ball of chain around your ankle. Debt, Mr. Money Mustache, my friend is fond of saying, if you have debt, it's like your hair's on fire. Nothing else matters until you put it out. Now, of course, there's always pushback. About what about good debt. You know, what about the debt for buying a house or what about the debt for starting a business or those kinds of things? Yeah, some debt's worse than other debt. I mean, credit card debt's much worse than those two. But no debt is good debt. I mean, some debt is necessary debt. But if you look at getting a mortgage for a house and people say, well, that's good debt. And that rapidly translates into, by the way, at the encouragement of banks and mortgage lenders and real estate agents, it quickly escalates into what's the maximum amount of debt your income can carry and therefore the maximum house you can buy. And doing that's a terrible thing to do. You should be buying the least expensive house that meets your need and taking on the least expensive debt in order to accomplish that. So debt is never a good thing. Sometimes it can be, if carefully used, a useful tool to enhance your lifestyle in a way that you want to enhance it. But by definition, enhancing your lifestyle is counterproductive to becoming financially independent.

Interesting. What I would love to. I'll save this for another podcast, but I think I have some thoughts about using. Well, let me ask you this question. If there was a way to use debt like a line of credit, to run a tax arbitrage. So one of the things we talk about is Roth conversion. So a lot of our users have a lot, most of their money in qualified savings. They're heading towards retirement and they're interested in converting it to Roths. And one way to do that is you find years where you have low income, convert the money in those years because you have to recognize it as income, get it into the Roth vehicle which then grows tax free and can go to your heirs largely tax free. You could potentially use debt to subsidize those low income years as well as a way to finance this. Do you think a strategy like that holds water or would you say too complicated and risky?

Yeah. So first of all, until you get to the debt part, I absolutely agree with the strategy you described, if you have low income years, it's a good time to shift money into Roth accounts and then it grows tax free forever. And if your income is low enough, sometimes you can do that with no tax consequence at all. When you talk about borrowing the money, in order to do that, you're laying on a whole other level of complexity and of course, another level of costs because you have an interest rate associated with that debt and you're ultimately going to have to pay it off. And that puts you in a weaker position where you have a debt that needs to be serviced and hanging over your head. Now, yes, I recognize that interest rates are really low these days, and that makes it all the more tempting and maybe makes it more reasonable, but I don't know. In my world, I just wouldn't go there. And in my world, my savings rate is big enough that I have the capital to make those Roth conversions when the opportunity permits.

Okay, awesome. Appreciate the perspective. Next one, Save a portion of every dollar you make.

Yeah, right. I mean, that's another way of saying, don't live paycheck to paycheck. If you want to be financially independent, if you want to have FU money, if you want to be free and have the widest possible choices in your life, you have to buy that freedom. And that you do by saving money. Sometimes I have people say to me, oh, you know, that just. It feels like deprivation. I'd rather spend the money. And my response is, well, you are spending the money. You're just buying your freedom. You know, instead of buying the fancier model of the car you want, you're taking some of that money and buying your freedom. Now, it's not my job or even my position to tell anyone how they should spend their money. It's their money. They can spend it however they choose. I would only suggest that you consider the possibility that one of the things you can buy with your money is your freedom. For me, speaking just personally, I can't imagine anything I would rather have. And so that's always been the number one priority in my spending of my money. But I recognize as we talked earlier, very few people have that priority. Most people, it's their last priority and somehow never makes the list each, at the end of each, each month.

Well, it gets important as they get, as they. There's a forcing function in people's lives where they get older and eventually they're probably going to stop making money from work and they're going to be faced with how are they going to finance, you know, a long hopefully long period of time post career.

Well, even, you know, even before that when we hit hard economic times, which of course we regularly do, that's the nature of the economy. Almost inevitably I'll be watching the news on television and I'll see some guy and he's probably in his mid to late 40s, and they'll trot him out and he'll say something like, you know, I was a manager at XYZ Corporation for the last 20 years and I just got laid off and in three months I'm going to lose my house. And I watched that and I think to myself, wait a second, you've had a managerial position for 20 years and you are so financially weak that you're going to lose your house in three months. It's hard for me to work up sympathy.

Right, yeah, I hear you. And this goes into the next one, like the percent. So you say target 50% of every dollar. Save that much money if possible. And I think also within that, if you do that, theoretically you can achieve financial independence in 14 years. Is that right around that time?

Yeah, something like the chart. Somewhere between 12 and 14 years. It depends on how strong the wind is at your back with the stock market, what your returns are. But basically that 50% is just the number that I randomly chose when I began my career. And it's perfectly doable number. You know, I just, I was my first professional job. I made $10,000 a year. This would have been in 1974. And I just looked at it as if I only brought in 5,000. That's what I built my lifestyle around. That's how I chose my apartment and everything else in my life. And the other 5,000 went into investing. And then when I was making 12,000 a year, 6 and 6 and 20, 10 and 10 and on up. So I let my lifestyle increase as my income increased, but only at 50% of whatever that income was. I can imagine that for somebody who's hearing this for the first time and they're say 35, they've been out in the workforce for 10, 15 years and is built up a certain kind of lifestyle. It can be hard to back away from that, and that's tough. But, you know, that's the choice you're going to have to make in that situation. And also there are people in the FI community who sneer at my 50%. I mean, there's some people say 50%. Nobody could ever do that. Well, there are lots of people who sneer at it and say 50%. I mean, you know, you can. I'm doing 60, 70, 80%. So you can do whatever you choose to do. I just happened to choose 50%. If somebody, if I'd been aware of other people doing this and somebody else said, you know, Jim, you could do 60 or 70, and there's this goal that you get to even sooner, I probably would have done something like that, but I didn't have that kind of guidance.

Right. I'm going to bundle up the next few because they're around VTS X. But basically it's buy VT SA X, embrace the fact that volatility is part of this equation and it's going to go down 30, 40% some years and shoot for living off of 2%. I know we talked about 4% earlier, but at that point you're kind of fully there. You're fully independent. Love your color commentary on that.

Yeah, well, vtsax we already talked about, it's the Total Stock Market Index Fund. You're basically betting on the American economy. Betting on America. So if you believe that the United States has a future, and I do, then that's about as good a bet worldwide as you can get anywhere. I recommend buying as much as you can whenever you can and holding it forever. And then regarding volatility, that's one of the most important points to remember is the way people lose money in the stock market is when it takes one of its periodic drops, and it does on a regular basis. They panic and they sell and then they lick their wounds and they've lost money and they say, man, I'm never doing that again. Volatility in the stock market is a perfectly natural thing. When the market drops 10%, which is called a correction, that's perfectly normal. When it drops 20%, which is called a bull market, that's a little rare, but it's perfectly normal. When it drops 30, 40, 50%, those are even rarer still. Those are called crashes. Again, perfectly normal. Being surprised by this is like being surprised by hurricanes if you live in Florida, or snowstorms if you live in New Hampshire. Now, that's not to say that hurricanes and snowstorms and market crashes aren't unpleasant and potentially damaging and harmful. They are, but you shouldn't be surprised by them. And by the same token, I say if you can't tolerate snowstorms, then you need to leave New Hampshire. If you can't tolerate hurricanes, you need to leave Florida. And if you can't tolerate market volatility, periodic, to be expected drops, then following my advice, will leave you bleeding by the side of the road, don't do it. Find some other strategy that doesn't involve the stock market. But if you're willing to tolerate the stock market volatility, it will give you the best, most powerful wealth building tool that you have. Just like if you're willing to tolerate hurricanes, there's some pretty nice living to have in Florida. If you're willing to tolerate blizzards, there's nice living in New England.

Yeah, well, I think one of the big lessons from you that I have from 2016, which took me, you know, the four years to kind of get to was there's never timing. The market is not a winning proposition. And like one thing you shared with me was that 75% of the years, three out of four, the market goes up and in 25% it goes down. But market, you know, for the last whatever 100 plus years has gone up into the right. Keeps doing that because we as an economy keep increasing productivity, making more stuff, generating more wealth. So you might as well hook yourself up to that train and go for it. But yeah, I mean, what would you say to people who are. Because there are a lot of our audience and I think everywhere this is a common question. If people have money and it's in cash, how do I get in the market or how should I think about that?

Right, so. Well, first of all, I have a chapter in the book and a post on the blog if you people want to just read this on why I don't like dollar cost averaging. As you alluded to, the market goes up 75% of the time. That translates into three out of four years. Again, it doesn't go up three years and then drop a year and then go up three years and drop a year. It's not that reliable or consistent. It can go up five, six years in a row and then be down two or three years in a row. But on average, and it's impossible for, to predict what the market's going to do. I mean, most recently in the spring with COVID I had people on my blog commenting that this time is different. You know, in March when the market was had taken a 30, almost to 35% plunge, they're like, this time is different. This is a pandemic. This is definitely going lower and it's not coming back for years, if ever. And you know, I'm getting out and blah, blah, blah, and, and I certainly didn't know what the market was going to do. But I also knew these people didn't know what the market was going to do either. Now, it's possible they could have been right. I mean, you know, there's somebody predicting at any given moment, anything the market can possibly be do and do, and those people will be right just by sheer luck. And of course, as we know now, the market hit that 33, 35% bottom and then immediately turned around and shot right back up. I certainly didn't know it was going to do that either. Nobody did. Nobody was predicting that. You can't predict what the market's going to do. The other thing to keep in mind is that once you're invested in the market, you're always subject to that big drop that you're just going to have to live through. That's the only way to deal with it. As we talked about with. Just like you're going to have to live through hurricanes in Florida. So if you have a chunk of money, the best thing to do is to put it to work right away. And it's possible that your timing could be bad and the next day you wake up and the market's down 30%. That's unlikely because those things don't happen very often. But you have to be prepared for that. But even more importantly, over the years, it will happen once your money's invested. So that's what I would say is get used to the fact that there is volatility in the market, and if you want to participate in the upside, then get in the game as soon as possible. The old saying, the best time to plant a tree was 20 years ago, and the second best time is now, today.

Right? That's awesome. Well, here's my story. I did write down what we talked about, and I created my own investor policy statement. And I said, when this. I said, all right, this is how I'm going to invest. You know, I'm going to do full in. I mean, I, you know, I. I have a mix of passive and active, but I'm going to go full index for any additional dollars. And then when the market corrected, I did, and I was posting this on Twitter, I was like, it kept on going down. I kept on buying, buying, buying, buying. Like I bought more about. And actually, lo and behold, that worked. Now, my regret is I didn't. I mean, I put a huge chunk of it in. But anyway, so your words had an effect. It took me a long time, but now, Now I'm just gonna. Now I'm just gonna forget about it and ignore everything.

You know, before we move on, the other. The other thing I wanted to chat about A little bit is you. You made the point that the market has gone relentlessly up. While it's volatile, it's gone relentlessly up. And you indicated one reason for that, which is a good one, but another reason that a fund like vtsax, the total Stock Market Index Fund keeps going up is that it's self cleansing. I'm part of that term because I created it. What I mean by self cleansing is VTSAX holds virtually every publicly traded company in the US stock market. Last time I looked that was about 3600 companies. It doesn't try to predict which companies are going to do better than other companies. It buys them on a market cap weighted fashion and we can talk about that if we need to, but it buys them without predicting what they're going to do. Now some of them are going to perform poorly and ultimately companies go out of business. So some of those companies that are on the index will go out of business. They'll probably actually drop off the index before that happens because if they get too small then they fall off the index. But they can have a pretty sharp drop. The most dramatic drop any stock can have of course is 100% and that's pretty bad. On the other hand, there'll be stocks in that index that rise. And the interesting thing there is that they can certainly rise 100% but they're not limited to that. Like the downside is they can rise 200% or 2,000%. There's no, literally no limit to the upside that a company can go. And so even as companies that are failing or maybe are just gotten to the end of their life cycle and are drifting down. Thinking now of a company like Sears as an example, there are new vital companies like Amazon that are, that are growing up and that you're participating in and that cycle will always continue. And that self cleansing process is one of the things that allows VTS X while it's volatile like the market itself to continue to march upwards.

Nice. No, I appreciate the color on that. We'd love a little bit more color on your portfolio. You mentioned like vtsax, vb, tlx and then I think. Do you have any other holdings right now? Cash or. You talked about real estate at one point, but I think you got out of it. Right?

Well we have, so we have this little vacation house that I'm talking to you from that's on the shores of Lake Michigan and turned out to be handy to have in this age of COVID to hide out in where otherwise nomadic and, and Roaming around the world. But Covid has kind of shut that down for the last few months. I don't, I guess I think of it as an investment because when we're not here we, we rent it out. But other than that we have, we have stock which is about 80% and VTS X and then I think, and I haven't looked in a while, but I think the bond position VBTLX is about 17%, maybe 3% in cash. And I think of cash and bonds as sort of being the same thing fundamentally in terms of my allocation. So 20% in cash and bonds and 80% in stocks is about where I like to be. That by the way, is especially for a person my age, is considered very, very aggressive. But that's, you know, I'm comfortable with the volatility that brings on. So I'm not suggesting that's the right allocation for everybody. It's just what I happen to do.

And you capture the income, I mean for your day to day living expenses. Where does that come from? Dividends.

Yeah. Well, if you're living on the portfolio right now because of the book royalties and the blog income, our day to day income is coming from those things and has for the last, I don't know, three, four years now. I don't see that as being secure income, you know, because I mean the book sales have done every year they've gone up to my great amazement. But I expect at some point they'll peak and begin to drift away. And I am writing less and less on the blog as you know, I've gotten older and so I'm expecting at some point the blog revenue will begin to drift away. So that's one of the reasons that I haven't gone 100% stocks and lived on that income exclusively because I just. That income doesn't feel reliable to me. But I don't know, maybe it's more reliable, has better legs than I think. But anyway, once that income's gone and living off the portfolio, sure, we would certainly have any dividends that I currently have reinvested would. I'd have them paid out into the checking account and then I'd sell whatever number of shares I needed to sell in order to pay the bills again, keeping a close eye on that 4% benchmark.

How many copies of the book have sold so far? Have you sold?

Over 200,000.

Wow, that's amazing. Yeah, nice.

Nobody's more amazed than I.

That's awesome.

It is as I say, it sells better this year. Is, is selling better than ever. So.

Well, there's definitely. There's strong word of mouth out there about the book. And is it in. It's in different languages too, right?

Yeah, we actually, I have an agent now who's done some international deals. The first was in Korean, South Korea, and it's been published in Japan and Japanese, in China and Taiwan. And we just inked a deal with Russia, so it'll be in Russian.

Wow, that's awesome.

It's amazing how many communist countries are embracing my book.

Anything. So the Simple Path to Wealth. And we'll link to it from the post on this, but anything you want to call out from the book that you think are especially important lessons for folks?

Well, I think it's, you know, everything we've been talking about so far today is what's in the book. And it's written primarily for my daughter. She was. She's the audience I have in mind. She was the audience I had in mind when I started the blog, which really had its origins are just archiving information for her. And what's key about my daughter is that she doesn't really care about this financial stuff. She's not interested in this. She's smart enough to know that she needs to understand it and get it right because it will make her life enormously better, but it's just not a topic of interest. And hence I wanted to create a simple path that was simple to understand, simple to implement, that you could put on autopilot. You just have to understand a couple very simple things. Get those right, put it on autopilot, which is basically buy VTS X whenever you can, as much as you can, keep your savings rate at least 50% and otherwise ignore it and don't panic when it gets volatile. That's the basic message. And so I'm always kind of pleased when I hear from readers. I'm always pleased to hear from readers who have benefited from the book under any circumstances. But the ones that particularly stand out to me are the ones who say something like, you know, I'm really not interested in this, but for the first time reading your book, I understand it. And this is something I can do and have done. And my response to that is, you're just like my daughter. You're the person I was writing for. And then of course, I get people who are interested in investing and they're like, well, you know, why don't you tweak it this way or tweak it that way or, you know, I actually have a post on the blog I wrote A year or so ago, maybe a little longer now called too hot, too cold, not pure enough. And you know, I have people say, oh, you're not aggressive enough. And then I have people who say you're too aggressive. And I have people who talk about socially responsible investing. And so too hot, too cold and not pure enough.

All right, we'll check it out. Yeah, I think that what's interesting is, you know, the whole financial services industry is typically paid in a non transparent way. You know, these fees that you can't see and they don't talk about. And so change has to come kind of from outside of it, from your book. And I think our worldview is the same. Like we're sitting here cranking out this planning software out of our garages. We don't make money on aum. You know, we do offer, we offer tools for this and then if you want to talk to an advisor, you can, but we only charge for time. You know, we don't any of that stuff. So. And because of that, like we can speak completely independently about our point of view because there's nothing else. There's no transaction fees or anything else or AUM fees getting taken every year. But you know, it's hard for. There's a famous quote, I was trying to look it up but like if it's, if a person is, you know, if a man is compensated a certain one way, you know, it's really hard to get them to change their point of view of how to make money.

Yeah, it's a great, I can't think of that quote either, but it's a great one.

They can rationalize a whole lot of things and I think that's true for financial services. Like there, sure, there's a lot of rationalization going on, but you know, there's like a famous, you know, financial Advisor, they manage $130 billion or $100 Million over 100 Billion. And you know, they charge 1%. They're charging a billion dollars in fees every year to their, to their customers. And I know Vanguard's published on this. If you pay that kind of fee, you know, you're giving up 30 to 40% of your potential future total return because you lose the money every year and you lose the potential compound returns on those returns that are raked out. And 1% sounds like, I remember when I first got a job, the four 1K's are coming out and I came in and talked about and like, yeah, it's 1%. 1% sounds like nothing, right? Sounds super low. But you're paying that 1% on your lifetime savings every year to somebody else. For what? I mean, if someone's managing a fund and there's three guys managing it and it manages 100 million, it takes three guys. If it manages 5 billion, you know, it could still be the same three guys. Are they earning that money? TBD, yeah.

No, you're right. 1% seems like nothing. But compounded over time, it's. That's significant. The other way to look at that 1%, we talked about the 4% rule, which means you can comfortably pull 4% of your holdings each year to live on. Well, if you're paying 1% of your holdings to a manager, that's 25% of your potential income, that has to pay that manager. And your other points, well, taken that a lot of fees are buried and hidden. So, you know, financial managers typically do assets under management, which is they will charge a fee. It's kind of hard to see that it's going to be 1 to even as high as 2% for that. And then, of course, are the underlying fees of whatever investments they put you in. So it can be really even worse than we're talking about. Others charge a commission for whatever they buy or sell on your behalf, or they collect a commission or whatever they buy or sell. And you tend not to see that as well. And then the third option is where they charge by the hour. And of course, there can be any combination of those three, too. What's interesting is customers are best served by those hourly fees, which are much more upfront and tend to be more modest over time because they don't compound over time. But they're much less comfortable with them because those fees are much more obvious. You're actually writing a check to someone. The other fees, which actually cost much more money because they're buried and the customer doesn't see them as clearly. The customer, ironically enough, is more comfortable with them. So I've had financial advisors say to me, I'm only doing what my customer is most comfortable with. And there's some truth to that.

Yeah, for sure. Well, we surveyed our users and we saw the same thing. 30, 40% of people were like, fine, I'll pay AUM fees. Even though it's like, hey, this is a lot more expensive. But we also get users saying, hey, I've been saving my money for my whole life, and now I've got a couple million bucks, I'm headed towards retirement, and I'm doing the math, and that's like 20,000 a year in Fees, you know, and they're kind of like, ooh, that's a couple nice vacations or whatever it is, a new car. So I think there's a growing awareness that these fees aren't cheap and people need to be smart about it. So I know we've gone over the kind of our, a lot of time here, but, you know, any last thoughts in terms of like, what's next or people that you really like in this space that our audience could benefit from? I know you mentioned Mr. Money Mustache, but anyone else?

Yeah, Mr. Money Mustache is great. He talks primarily about organizing your life in such a fashion that you free up and by effect, you wind up freeing up money that you can then invest. I've often thought of him as kind of being how you organize your life. And then once you do that and you freed up the money, I talk about how to invest it. Christine Bryce of Millennial Revolution do a great job. And with that, I mean, there's so many to name with their book Quit Like a Millionaire. It's kind of, I hesitate going any further because I'm going to admit so many great voices that are out there.

Yeah, fair enough. We don't go through everyone, but I know you've inspired many of them and it's, it's awesome that you got your book written and you self published it too, right?

I did, I did. I self published it. The audio version. As I mentioned earlier on the international deals, I have an agent, Anna by name, and I first worked with Anna. She negotiated the deal on the Audible version of the book. But the Kindle and the print version I self published and I think brought out the Audible version maybe a year later, something like that.

Okay, cool, we'll have to link to that. You know, JL really appreciate your time and thanks for coming on our show. Thanks, Dotto Robison for being our sound engineer. Anyone listening? Thanks for listening. Hopefully you found this useful. Our goal at New Retirement is to help anyone plan and manage their retirement so they can make the most of their money and time. And if you made it this far, I encourage you to check out jlcollinsnh.com his Google talk as well and his book the Simple Path to Wealth. We'll link to all them from this podcast. And then finally, we're trying to build the audience for this podcast. So any reviews are welcome. We do read them and try to adapt as we go. So with that, thank you and have a great day.